How Canadian mortgage payments are calculated
Canadian mortgages work differently from American ones in one important way: under the federal Interest Act, fixed-rate mortgages are compounded semi-annually, not monthly. The posted rate is first turned into an effective rate per payment period, and the payment is then calculated from that:
- r = annual mortgage rate in percent
- n = payments per year (12 monthly, 26 bi-weekly, 52 weekly)
- P = total mortgage, including any CMHC insurance premium
- N = total number of payments (amortization in years × n)
Semi-annual compounding makes the payment slightly lower than a US-style calculator would show: on a $556,740 mortgage at 4.5% over 25 years, the monthly payment is $3,081 instead of about $3,095.
Worked example
You buy a $600,000 home with 10% down ($60,000). Because the down payment is under 20%, the mortgage must be insured: the CMHC premium is 3.10% of $540,000, or $16,740, which is added to the mortgage for a total of $556,740. At 4.5% over 25 years, monthly payments are about $3,081 and the total interest is about $367,700. After a 5-year term, about $488,800 is still owing when you renew.
Minimum down payment in Canada
| Purchase price | Minimum down payment |
|---|---|
| $500,000 or less | 5% of the price |
| $500,000 to $1,499,999 | 5% of the first $500,000 + 10% of the rest |
| $1.5 million or more | 20% (cannot be insured) |
For example, a $700,000 home needs at least $25,000 + $20,000 = $45,000 down.
CMHC mortgage insurance premiums
If you put down less than 20%, your lender must insure the mortgage with CMHC, Sagen or Canada Guaranty. The premium is a percentage of the mortgage amount and is usually added to the mortgage.
| Down payment | Premium (25-year) | Premium (30-year) |
|---|---|---|
| 5% to 9.99% | 4.00% | 4.20% |
| 10% to 14.99% | 3.10% | 3.30% |
| 15% to 19.99% | 2.80% | 3.00% |
| 20% or more | None | None |
In Ontario, Quebec and Saskatchewan, provincial sales tax (8%, 9% and 6%) applies to the premium. It has to be paid in cash at closing. Insured mortgages can be amortized over up to 30 years only for first-time buyers and buyers of newly built homes; otherwise the maximum is 25 years.
Accelerated payments
With accelerated bi-weekly payments you pay half of the monthly payment every two weeks. Because there are 26 bi-weekly periods in a year, that adds up to the equivalent of 13 monthly payments a year instead of 12. In the example above, it cuts the amortization from 25 years to about 21 years 8 months and saves about $55,800 in interest. Regular (non-accelerated) bi-weekly payments cost about the same as monthly payments.
Term vs. amortization
- Amortization is the total time to pay off the mortgage, usually 25 or 30 years.
- Term is how long your rate and conditions are locked in, most often 5 years. At the end of the term you renew, possibly at a different rate, on the balance still owing.
The mortgage stress test
To qualify for an insured mortgage, you must show you could afford payments at the higher of 5.25% or your contract rate plus 2%. Lenders also look at your debt service ratios: housing costs are generally expected to stay below about 39% of gross income, and all debts below about 44%.
Buying in the United States? Use the US mortgage calculator with property tax and PMI. Need the sales tax for your province? Try the GST/HST calculator.
Frequently asked questions
How is a mortgage payment calculated in Canada?
Fixed-rate mortgages compound semi-annually. Convert the annual rate r to a periodic rate i = (1 + r/200)^(2/n) − 1, where n is the number of payments per year, then use Payment = P × i ÷ (1 − (1 + i)^−N). The calculator does this for every payment frequency.
What is the payment on a $500,000 mortgage in Canada?
At 4.5% over 25 years with semi-annual compounding, the monthly payment on a $500,000 mortgage is about $2,767. Over 30 years it is about $2,521.
How much is CMHC insurance?
4.00% of the mortgage with 5% to 9.99% down, 3.10% with 10% to 14.99% down and 2.80% with 15% to 19.99% down, plus 0.20% for a 30-year amortization. There is no insurance with 20% or more down.
What is the minimum down payment in Canada?
5% on the first $500,000 and 10% on the portion from $500,000 to $1,499,999. Homes of $1.5 million or more need at least 20%.
Are accelerated bi-weekly payments worth it?
They add the equivalent of one extra monthly payment each year, which typically shortens a 25-year amortization by about three years and saves tens of thousands of dollars in interest.
This calculator is for information only and is not financial advice. Your lender's figures may differ slightly because of rounding, fees and rate changes at renewal.