If there is no interest upon interest, that is, if the required payments collect interest, then there is no compounding effect as far as APR. So in that regard, the cite given from Stephen Kellison is correct.
Things may have changed in the last decade, but I have never seen interest compounding feature(assuming payments are made as required) on a mortgage loan and I have seen more than 10,000.
Sometimes commerical loans do have an interest compounding feature, but they aren’t covered by T-I-L, so there’s no APR.
At any rate, I am finding plenty of contradictory information the more I look so it seems correct that many places just calculate the monthly APR and then multiply by 12. Like This calculator. The problem with that is that you can only make meaningful comparisons between loans which have the same compounding periods. In this case the period is set to one month.
There are mortgage loans with 24 payments per year and if you compare one with the 12 payments/year loan, then you must take the compounding into account. But so long as both loans being compared have the same period duration, then, obviously the compounding can be ignored and the comparison is still meaningful. But once you are comparing different period durations you have to take it into account.
sailor, I’m indifferent to whether you call it compounding or not.
Relative to the APR question. Say there were none of those “finance charges” as defined by Reg Z. Then the note amount and the defined term “amount financed” would be the same.
Say you had a choice of mortgages like this at a note rate of 12%. 20 years, payments figured monthly or annually, so that each time you made a payment you would be paying interest for the prior period.
Your total payments on the monthly loan would be quite a bit less as each time you made a payment, interest would be recalculated on the unpaid balance. So in that sense, there is compounding.
Twelve months payments would be less than a single annual payment. But under this senario, what is the APR? In both cases, the APR would be the note rate, 12%.
Yes, I understand that words do not have strict, universally accepted, meanings and there is no substitute for understanding all the terms of the contract.
OK, how about this page, describing “closed-ended” types of loans, which include mortgages:
This definition matches what I stated above. Jumping to the section on credit cards, they mention:
a definition which matches your credit card data above: “I checked one of my credit cards and the interest compounds daily: .02836%(Daily) = 10.350% APR” (0.02836)*365 = 10.3514. However, neither definition appears to match your answer above.