Mortgage Amortization Calculator (Canada)

What the mortgage amortization calculator does

The calculator shows the full cost of a home loan: the level monthly payment, the total interest over the amortization period and the total amount repaid. The interest figure is often far larger than buyers expect.

Amortization means paying a loan down to zero through equal regular payments. Early payments are mostly interest and later ones mostly principal. The tool sums that whole schedule into a few numbers.

Why Canadian compounding is different

By law, interest on most Canadian fixed-rate mortgages compounds semi-annually rather than monthly, and that changes the arithmetic of every payment.

To find the monthly payment, the annual rate is converted into an effective monthly rate: the sixth root of the half-year growth factor, since each compounding period holds six months. The result is a little lower than the annual rate divided by twelve, so a Canadian payment is slightly smaller than a monthly-compounded loan at the same posted rate. The calculator does this conversion for you.

How the calculation works

• The annual rate becomes an effective monthly rate using semi-annual compounding.
• The number of payments is the amortization period times twelve.
• The tool solves for the level payment that brings the balance to zero over that many months.
• The payment times the number of months gives the total repaid; subtracting the principal gives the total interest.

A worked example

Take a $500,000 mortgage at 5% amortized over 25 years. After the semi-annual conversion the effective monthly rate is about 0.4124%. Over 300 payments the level payment is about $2,908.

Across the amortization the borrower repays about $872,407, of which about $372,407 is interest, close to three quarters of the original loan. Seeing that figure up front often changes how much buyers borrow and whether they shorten the amortization.

A shorter amortization

Keep the same $500,000 at 5% and shorten the amortization to 20 years. Payments fall from 300 to 240 and the payment rises to about $3,286 a month, up from about $2,908.

Over 240 payments the borrower repays about $788,550, of which about $288,550 is interest, against about $372,407 over 25 years. Cutting five years saves close to $84,000 of interest at the same rate, which is the case for taking the shortest amortization your budget can comfortably carry.

How to use the results

Start with your expected purchase and a realistic rate, then experiment. A shorter amortization raises the payment and lowers the total interest. A higher rate shows how sensitive the payment is to the market, which matters because Canadian mortgages renew every few years at whatever rate applies then.

The monthly payment is what you budget each month, the total interest is the long-run cost of borrowing, and the total repaid is principal plus interest.

Amortization rules across the country

The arithmetic is the same everywhere in Canada, and the length you can choose is set by national rules. Mortgages with less than 20% down need default insurance, and insured mortgages have traditionally been capped at 25 years. Uninsured mortgages could stretch to 30 years, and recent policy changes have opened longer amortizations to some first-time buyers and buyers of newly built homes. The calculator models any period you enter, but your real options depend on your down payment and the kind of purchase.

The semi-annual compounding rule is also national, so the effective monthly rate in the example holds whether you buy in Halifax or Victoria.

Common mistakes with amortization

• Confusing the term with the amortization. The term is your current rate contract; the amortization is the full time to zero.
• Dividing the annual rate by twelve, which overstates the Canadian monthly rate and inflates the payment and interest.
• Assuming today’s rate lasts the whole way. Over 25 or 30 years you will renew several times, so total interest is a projection.
• Reading a large total interest figure as a reason to panic. Its use is to help you weigh a shorter amortization or extra payments.

Assumptions and limits

The calculation assumes one fixed rate for the whole amortization, level monthly payments and no prepayments or missed payments. It excludes property tax, insurance, condo fees and mortgage default insurance premiums. Lender rounding can move the payment by a few dollars, so confirm the payment, compounding and amortization with your lender or a licensed mortgage professional before you commit.

This article is general information only and is not financial advice.

About This Tool: Mortgage Amortization Calculator Canada

Mortgage amortization calculator Canada: use this tool to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.