Taking Advantage of Blended Payments
Blended payment is a loan repayment method whereby the loan is repaid in equal instalment amounts including the interest on the borrowed sum as well as a part of the principal. However, the interest and the principal in the repayment instalments differ each time. In fact, many people often confuse this type of loan repayments with an amortized loan repayment schedule. Basically, any loan repayment schedule, irrespective of whether the repayment amounts are identical or not, that includes the imbursement of the principal sum over a period of time stretching to insolvency is known as the amortized payment plan. Thus, simply speaking a real blended payment arrangement is one where identical payments are made at specific periods during the term of the mortgage and every imbursement is a combination of the interest as well as the principal sum.
It may be noted here that over the decades the blended payments have been well accepted by most home owners as it allows for advance budgeting owing to the provision of making equal periodic repayments all through the term of the mortgage. The mortgagor and the mortgagee may decide on any periodic payment schedule, but most home loans require a monthly payment schedule. However, it must also be mentioned that with the mortgage market becoming more competitive, weekly, bi-weekly and even semi-monthly loan repayment arrangements are gradually becoming more popular.
Computing the blended payment of a Canadian mortgage comprising a compound interest repaid every month, for instance an eight per cent annual interest rate compounded every month, is basically a simple mathematics. Nevertheless, problems crop as the Interest Act requires a particular check relating to the interest disclosure in the case of blended payment arrangements for a mortgage.