Mortgage Payment Calculator (Canada)

Canadian fixed-rate mortgages compound semi-annually, not in advance. Before the standard annuity formula can be applied, the annual rate is converted to an equivalent periodic rate: take half the annual rate, add one, raise it to the power of two divided by the number of payments per year, and subtract one. That periodic rate then drives the payment.

The practical effect is that a Canadian payment is a little lower than the same rate would produce in the United States. It is a small difference on a monthly basis and a meaningful one over 25 years, which is why any calculator you rely on should be built for Canadian rules.

Monthly, semi-monthly, bi-weekly and weekly options all exist, and each has an accelerated version. Non-accelerated frequencies simply slice the same annual amount into more pieces — the interest saving is small. Accelerated frequencies charge half or a quarter of the monthly payment on a two-week or one-week cycle, which slips in a thirteenth monthly payment each year.

• Monthly — 12 payments a year, simplest, highest total interest
• Semi-monthly — 24 payments, matches most pay cycles, small saving
• Bi-weekly — 26 payments of the same annual total, minimal saving
• Accelerated bi-weekly — 26 payments at half the monthly amount, the biggest routine saving
• Accelerated weekly — 52 payments at a quarter of the monthly amount, marginally better again

Qualification is based on more than principal and interest. Lenders add property taxes, heating costs, and half of any condo fees to build your Gross Debt Service ratio, then add your other debt payments for Total Debt Service. You also have to qualify at the stress test rate — the greater of your contract rate plus 2% or 5.25%.

That means the payment you can comfortably make and the payment the lender tests you against are two different numbers. Budgeting to the tested figure is the safest way to avoid a surprise at renewal.

The standard annuity formula gives the payment: P × i / (1 − (1 + i)^−n). P is the amount borrowed, n is the number of payments, and i is the periodic interest rate. For a Canadian fixed-rate mortgage, i is derived from semi-annual compounding: i = (1 + annual rate / 2)^(2/12) − 1 for monthly payments.

Variable-rate mortgages generally compound monthly, so i is simply the annual rate divided by 12. On a $600,000 mortgage the difference between the two conventions is around $20 a month.

Monthly gives 12 payments a year. Semi-monthly gives 24 payments that total the same amount. Bi-weekly gives 26 payments that also total the same amount if the payment is simply the monthly figure times 12 ÷ 26.

Accelerated bi-weekly is different: the payment is exactly half the monthly payment, made 26 times, which means you pay 13 monthly payments' worth every year. That extra payment goes entirely to principal and typically shortens a 25-year amortization to about 22 years at no real cost to your monthly cash flow.

The figure this calculator produces is principal and interest. Your real monthly housing cost also includes property tax (often collected by the lender and held in escrow), heating, home insurance, condo or strata fees, and any mortgage default insurance premium that was added to the loan.