Canadian Mortgage: worked example
| Home price | $500,000 |
|---|---|
| Down payment | $100,000 |
| Annual interest rate | 5.0% |
| Amortization period | 25.0 years |
| Monthly payment | $2,326 |
| Total interest over the amortization | $297,926 |
| Effective annual rate | 5.1% |
Canadian Mortgage: formula
Enter purchase price, down payment, quoted nominal annual interest and amortization years under the selected semiannual convention. Add any financed insurance premium to the amount being modeled separately. Premium eligibility, down-payment requirements, renewal term and closing charges require the lender’s actual offer.
The Interest Act’s applicable disclosure provision refers to rates calculated yearly or half-yearly, not in advance; it does not make every Canadian product follow this one compounding model. A monthly-compounded or otherwise different contract requires its own convention. Taxes, insurance, fees and qualifying stress tests are outside this principal-and-interest result.
Common error: Running a Canadian quote through a US calculator. The difference looks small each month, but across the amortization it changes total interest by a real amount.
Canadian Mortgage: changing Annual interest rate
| Annual interest rate | Monthly payment | Total interest over the amortization | Effective annual rate |
|---|---|---|---|
| 3.0% | $1,893 | $167,895 | 3.0% |
| 4.0% | $2,104 | $231,224 | 4.0% |
| 5.0% (example) | $2,326 | $297,926 | 5.1% |
| 6.0% | $2,559 | $367,768 | 6.1% |
| 7.0% | $2,802 | $440,499 | 7.1% |
Canadian Mortgage: compare input ranges
| Input | Tested from | To | Monthly payment: low input | Monthly payment: high input | Swing |
|---|---|---|---|---|---|
| Amortization period | 19.0 years | 31.0 years | $2,710 | $2,105 | $605 (26%) |
| Home price | $450,000 | $550,000 | $2,036 | $2,617 | $582 (25%) |
| Annual interest rate | 4.0% | 6.0% | $2,104 | $2,559 | $455 (20%) |
| Down payment | $90,000 | $110,000 | $2,385 | $2,268 | $116 (5.0%) |
Canadian Mortgage: individual input comparisons
| Input | Value | Monthly payment | Total interest over the amortization | Effective annual rate |
|---|---|---|---|---|
| Home price | $400,000 | $1,745 | $223,444 | 5.1% |
| $450,000 | $2,036 | $260,685 | 5.1% | |
| $500,000 | $2,326 | $297,926 | 5.1% | |
| $550,000 | $2,617 | $335,167 | 5.1% | |
| $600,000 | $2,908 | $372,407 | 5.1% | |
| Down payment | $80,000 | $2,443 | $312,822 | 5.1% |
| $90,000 | $2,385 | $305,374 | 5.1% | |
| $100,000 | $2,326 | $297,926 | 5.1% | |
| $110,000 | $2,268 | $290,478 | 5.1% | |
| $120,000 | $2,210 | $283,030 | 5.1% | |
| Annual interest rate | 3.0% | $1,893 | $167,895 | 3.0% |
| 4.0% | $2,104 | $231,224 | 4.0% | |
| 5.0% | $2,326 | $297,926 | 5.1% | |
| 6.0% | $2,559 | $367,768 | 6.1% | |
| 7.0% | $2,802 | $440,499 | 7.1% | |
| Amortization period | 13.0 years | $3,482 | $143,164 | 5.1% |
| 19.0 years | $2,710 | $217,861 | 5.1% | |
| 25.0 years | $2,326 | $297,926 | 5.1% | |
| 31.0 years | $2,105 | $383,034 | 5.1% | |
| 37.0 years | $1,966 | $472,802 | 5.1% |
Canadian Mortgage: combined input changes
| Annual interest rate / Home price | $400,000 | $500,000 | $600,000 |
|---|---|---|---|
| 3.0% | $1,420 | $1,893 | $2,366 |
| 4.0% | $1,578 | $2,104 | $2,630 |
| 5.0% | $1,745 | $2,326 | $2,908 |
| 6.0% | $1,919 | $2,559 | $3,199 |
| 7.0% | $2,101 | $2,802 | $3,502 |
Canadian Mortgage: which assumptions move the result?
Canadian Mortgage: values and definitions
| Quantity and definition | Value used |
|---|---|
| Home price | $500,000 |
| Down payment | $100,000 |
| Annual interest rate — The rate on your mortgage contract, quoted with half-yearly compounding. | 5.0% |
| Amortization period | 25.0 years |
| Monthly payment | $2,326 |
| Total interest over the amortization | $297,926 |
| Effective annual rate | 5.1% |
Canadian Mortgage: half and double Amortization period
| Amortization period | Monthly payment |
|---|---|
| 12.5 years | $3,581 |
| 25.0 years | $2,326 |
| 50.0 years | $1,802 |
Mortgage & Home calculators: Mortgage Payment Calculator, Home Affordability Calculator, Closing Cost Calculator, Mortgage Refinance Calculator, Extra Mortgage Payment Calculator, Mortgage Points Calculator.
Canadian fixed-rate mortgages are quoted with half-yearly compounding, while payments run monthly, so the monthly rate is not the annual rate divided by twelve. A 5 percent quote works out to a monthly rate of about 0.412 percent and an effective annual rate of about 5.06 percent. On a $400,000 mortgage over 25 years that gives a payment near $2,326, a little lower than the same rate figured the American way.
The mortgage contract specifies its compounding convention. Variable-rate mortgages often compound monthly, and a quote's rate type decides which formula applies.
Compare rates for the same term from several lenders and mortgage brokers, and ask about prepayment privileges, since Canadian fixed mortgages often limit lump-sum payments and charge penalties calculated on interest rate differential. Plan for renewal, when you can renegotiate. Check the land transfer tax in your province and the stress-test rate for qualification.
The extra payment and biweekly calculators can help you plan prepayments within your limits.
Is the contract term the same as amortization?
No. A five-year term can end with a remaining balance even when payments were calculated over a 25-year amortization. Renewal terms determine the later payments.
Why do Canadian mortgages compound half-yearly?
This model converts a nominal rate compounded semiannually to an equivalent monthly rate: (1+j/2)^(1/6) − 1. The stated Canadian mortgage compounding convention can differ from j/12. Canadian disclosure rules and variable-rate products require their own contract-specific review.
What is the difference between term and amortization?
The amortization is the full repayment period. The term is the length of the contract, after which you renew.
Do I need mortgage insurance?
Mortgage-default-insurance requirements depend on down payment, price, lender and program eligibility. Use the applicable insurer and lender guidance for the transaction. A financed premium increases the amortized principal; a separately paid premium affects cash to close instead.
This payment model does not establish insurance eligibility.