Simple Interest Mortgage

by Michael Shohoney September 14, 2012 09:19

Recently we've had a couple of inquiries along the lines of "Do you calculate a simple interest mortgage?"  Our response has been that virtually all of our calculations are simple interest.  Simple interest, as defined in the financial mathematics world, is interest that is not discount interest nor compound interest.  That is, it is a method of calculating interest.  There was confusion by those making the inquiry and evidence that they were looking for something else.  So, we did what anyone looking for answers does these days and "googled" "simple interest mortgage."

Well, we were surprised to find that the mortgage industry has used this name to indicate a mortgage that accrues interest on an Actual days basis versus a traditional 30/360 (or periodic) basis.  What we had was merely a difference in terminology.  We were using the classic financial mathematics term while our customers were using a new trend term in the industry.  Once we knew what they were looking for, it was easy to tell them how to calculate a simple interest mortgage.  All they had to do was choose the appropriate basis (usually Actual/365) from the Options and Variations screen or send the proper data into the ZMath Engine.  All of our loans offer the ability to choose the accrual basis you need.  So, yes, we calculate the simple interest mortgage!