Standard Rate Simulation Assumptions

Amortization simulations are sometimes used to compare the hypothetical future performance of two different mortgage terms.

When performing simulations we make the following standard assumptions:

  • Amortization is 25-years
  • Compounding is semi-annual (unless otherwise stated)
  • The borrower has no need for early termination before maturity
  • The borrower makes equal payments in each case. (e.g., When comparing a variable and 5-year fixed, it’s assumed that the variable-rate borrower will increase his/her payments to match the 5-year fixed payment [if it is higher].)

Furthermore, where we state that Bank of Canada rate changes are to occur “during” a particular year, we sample three different scenarios of when those changes might happen:

  1. early in the year
  2. in the middle of the year
  3. late in the year.

We then take a simple average of borrowing costs, based on these three scenarios, and use that in our conclusion. This is necessary because it’s impossible to know exactly when the BoC will change rates.

Always remember: Projections are based on hypothetical borrowing cost computations only. They do not consider individual borrower circumstances, which may dictate a different course of action than that suggested by a simulation. All data are hypothetical and rate-dependent and results we post may differ from actual performance. Speak to a licensed professional mortgage advisor before using any information you read online.