How frequently can interest be compounded on residential mortgages in Canada?

In Canada, the compounding frequency of interest on residential mortgages is generally allowed to be either annually or semi-annually. This means that the interest accrued during a specified period is added to the principal, and subsequent interest calculations are based on this new balance.

The reason why annually and semi-annually are common compounding frequencies is that they strike a balance between lender profitability and borrower affordability. While annual compounding means that interest is added just once a year, semi-annual compounding results in interest being added twice a year, which can slightly affect the overall cost of the mortgage over time.

Furthermore, this compounding practice is aligned with certain regulatory frameworks and conventional methods widely accepted in the Canadian mortgage industry, making it a standard practice amongst lenders.

The other options present different combinations that either do not align with typical practices in Canada or include frequencies that are less common, which is why they are not considered standard for residential mortgages.