refactor: calculate periodic payment based on monthly (#8)

.vscode/settings.json

@@ -0,0 +1,5 @@
+{
+  "cSpell.words": [
+    "Annualize"
+  ]
+}

src/interestRate.spec.ts

@@ -1,10 +1,10 @@
-import { calcEffectiveInterestRate, calcPeriodicInterestRate, resolvePaymentRate } from "./interestRate";
+import { calcEffectiveRate, calcMonthlyRate } from "./interestRate";
 
 describe("Tests if the effective interest rate is calculated correctly", () => {
   it("should calculate the effective rate based on the nominal rate and compounding frequency", () => {
     const nominalInterestRate = 2.34;
     const compoundingFrequency = 2;
-    const effectiveRate = calcEffectiveInterestRate(nominalInterestRate, compoundingFrequency);
+    const effectiveRate = calcEffectiveRate(nominalInterestRate, compoundingFrequency);
 
     expect(effectiveRate).toBe(0.023536890000000144);
   });
@@ -14,35 +14,10 @@ describe("Tests if the periodic interest rate is calculated correctly", () => {
   it("should calculate the monthly rate based on effective rate", () => {
     const nominalInterestRate = 2.34;
     const compoundingFrequency = 2;
-    const paymentSchedule = 'monthly';
 
-    const paymentRate = resolvePaymentRate(paymentSchedule);
-    const effectiveRate = calcEffectiveInterestRate(nominalInterestRate, compoundingFrequency);
-    const periodicRate = calcPeriodicInterestRate(effectiveRate, paymentRate);
+    const effectiveRate = calcEffectiveRate(nominalInterestRate, compoundingFrequency);
+    const periodicRate = calcMonthlyRate(effectiveRate);
 
     expect(periodicRate).toBe(0.0019405611613942941);
   });
-});
-
-describe("Tests if the payment rate is resolved correctly", () => {
-  it("should calculate the payment rate based on monthly payment schedule", () => {
-    const paymentSchedule = 'monthly';
-    const paymentRate = resolvePaymentRate(paymentSchedule);
-
-    expect(paymentRate).toBe(0.08333333333333333);
-  });
-
-  it("should calculate the payment rate based on bi-weekly payment schedule", () => {
-    const paymentSchedule = 'bi-weekly';
-    const paymentRate = resolvePaymentRate(paymentSchedule);
-
-    expect(paymentRate).toBe(0.038461538461538464);
-  });
-
-  it("should calculate the payment rate based on accelerated bi-weekly payment schedule", () => {
-    const paymentSchedule = 'accelerated-bi-weekly';
-    const paymentRate = resolvePaymentRate(paymentSchedule);
-
-    expect(paymentRate).toBe(0.08333333333333333);
-  });
 });

src/interestRate.ts

@@ -1,40 +1,15 @@
-export function calcEffectiveInterestRate(nominalInterestRate: number, compoundingFrequency: number): number {
+export function calcEffectiveRate(nominalInterestRate: number, compoundingFrequency: number): number {
   // Formula from: https://www.mikesukmanowsky.com/blog/a-guide-to-canadian-mortgage-calculations
   const base = 1 + ((nominalInterestRate / 100) / compoundingFrequency);
   const exponent = compoundingFrequency;
   const effectiveInterestRate = Math.pow(base, exponent) - 1;
-
   return effectiveInterestRate;
 }
 
-export function calcPeriodicInterestRate(effectiveInterestRate: number, paymentFrequency: number): number {
+export function calcMonthlyRate(effectiveInterestRate: number): number {
   // Formula from: https://www.mikesukmanowsky.com/blog/a-guide-to-canadian-mortgage-calculations
   const base = 1 + effectiveInterestRate;
-  const exponent = paymentFrequency;
+  const exponent = 1/12;
   const monthlyInterestRate = Math.pow(base, exponent) - 1;
-
   return monthlyInterestRate;
-}
-
-export function resolvePaymentRate(paymentSchedule: string) : number {
-  switch (paymentSchedule.toLowerCase()) {
-    case "monthly":
-      return 1/12;
-    case "bi-weekly":
-      // In the bi-weekly schedule, 26 payments are made in a year
-      // This is expressed in the formula as 365/26. However, this is a periodic fraction.
-      // Some will approximate it to 14. And some will use the fraction as I'm using.
-      // Meaning that the result can be different from other calculators.
-      // The government's calculator yield a different result: https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MCCalc-CHCalc-eng.aspx
-      // While "mortgagecalculator.org" yields the same: https://www.mortgagecalculator.org/calcs/canadian.php
-      return (365/26)/365;
-    case "accelerated-bi-weekly":
-      return 1/12;
-    default:
-      throw new Error(JSON.stringify({
-        message: "The payment schedule is invalid.",
-        information: `The payment schedule must be one of the following: monthly, bi-weekly, accelerated-bi-weekly`,
-        code: 400
-      }));
-  }
 }

src/mortgage.spec.ts

@@ -51,7 +51,7 @@ describe("Tests if the payment per payment schedule is calculated correctly", ()
 
     const payment = calculate(propertyPrice, downPayment, nominalInterestRate, amortization, paymentSchedule);
 
-    expect(payment).toBe(970.25);
+    expect(payment).toBe(971.11);
   });
 
   it("should calculate payments over an accelerated bi-weekly schedule", () => {

src/mortgage.ts

@@ -1,8 +1,4 @@
-import { 
-  calcEffectiveInterestRate,
-  calcPeriodicInterestRate, 
-  resolvePaymentRate
-} from "./interestRate";
+import { calcEffectiveRate, calcMonthlyRate } from "./interestRate";
 import { validate } from "./validator";
 
 export function calculate(
@@ -17,46 +13,46 @@ export function calculate(
   if (errors.length > 0) return errors;
 
   const compoundingFrequency = 2;
-  const principalLoanAmount = propertyPrice - downPayment;
-  const numberOfPayments = paymentSchedule === "bi-weekly" ? amortization * 26 : amortization * 12;
+  const principal = propertyPrice - downPayment;
 
-  const paymentRate = resolvePaymentRate(paymentSchedule);
-  const effectiveInterestRate = calcEffectiveInterestRate(interestRate, compoundingFrequency);
-  const periodicInterestRate = calcPeriodicInterestRate(effectiveInterestRate, paymentRate);
-
-  const paymentPerSchedule = paymentSchedule === "accelerated-bi-weekly" 
-    ? calcPaymentPerSchedule(periodicInterestRate, numberOfPayments, principalLoanAmount) / 2
-    : calcPaymentPerSchedule(periodicInterestRate, numberOfPayments, principalLoanAmount)
+  const effectiveRate = calcEffectiveRate(interestRate, compoundingFrequency);
+  const monthlyRate = calcMonthlyRate(effectiveRate);
+  const monthlyPayment = calcMonthlyPayment(monthlyRate, principal, amortization)
+  const paymentPerSchedule = calcPaymentPerSchedule(paymentSchedule, monthlyPayment);
 
   const paymentPerScheduleFormatted = Number.parseFloat(paymentPerSchedule.toFixed(2));
   return paymentPerScheduleFormatted;
 }
 
-export function calcPaymentPerSchedule(periodicInterestRate: number, numberOfPayments: number, principalLoanAmount: number): number {
+function calcMonthlyPayment(monthlyRate: number, principalLoanAmount: number, amortization: number): number {
     // Formula from: https://www.bankrate.com/mortgages/mortgage-calculator/#how-mortgage-calculator-help
-    const numerator = periodicInterestRate * Math.pow(1 + periodicInterestRate, numberOfPayments);
-    const denominator = Math.pow(1 + periodicInterestRate, numberOfPayments) - 1;
-    const paymentPerSchedule = (principalLoanAmount * numerator) / denominator;
-
-    return paymentPerSchedule;
+    const amortizationInMonths = amortization * 12;
+    const numerator = monthlyRate * principalLoanAmount
+    const denominator = 1 - Math.pow(1 + monthlyRate, -amortizationInMonths);
+    const monthlyPayment = numerator / denominator;
+    return monthlyPayment;
 }
 
+function calcPaymentPerSchedule(paymentSchedule: string, monthlyPayment: number): number {
+  // Annualize the payments and divide it by the number of payments per year
+  if (paymentSchedule === "bi-weekly") return (monthlyPayment * 12) / 26;
+  if (paymentSchedule === "monthly") return monthlyPayment;
+  if (paymentSchedule === "accelerated-bi-weekly") return monthlyPayment / 2;
+  throw new Error("Invalid payment schedule");
+} 
+
 export function calcMinimumDownPayment(propertyPrice: number): number {
   // Data from: https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html
-  let minimumDownPayment = 0;
-
   // 5% of the purchase price
   if (propertyPrice <= 500000) 
-    minimumDownPayment = propertyPrice * 0.05;
+    return propertyPrice * 0.05;
 
   // 5% of the first $500,000 of the purchase price
   // 10% for the portion of the purchase price above $500,000
   else if (propertyPrice > 500000 && propertyPrice <= 999999) 
-    minimumDownPayment = 25000 + ((propertyPrice - 500000) * 0.1);
+    return  25000 + ((propertyPrice - 500000) * 0.1);
 
   // 20% of the purchase price
   else 
-    minimumDownPayment = propertyPrice * 0.2;
-
-  return minimumDownPayment;
+    return  propertyPrice * 0.2;
 }