I'm taking a finance course at a Canadian university. The teacher said this time-of-money is how the banks calculate their loans and mortgages. Out of the blue, I want to try how close the formula in school match up to the real world. Here's my scenario:
Borrow $300,000 at 3% interest, to be paid over 25 years. By law, the interest is compounded twice per year. Payment is to be made bi-weekly (26 payments per year). How much is the bi-weekly payment?
I first calculate the periodic interest rate:
r = (1 + 0.03 / 2) ^ (2/26) - 1 = 0.001145934...
Then plug everything into Excel:
=PMT(r, 650, 300000)
The result is $654.83.
I then go to TD Bank's mortgage calculator and plug in the parameters. The result is $652.90 (see pics below).
How did the bank come up with their number? What did I do wrong?