How this calculator works
A fixed-rate mortgage is repaid with the same payment every month for the life of the loan. Early payments are mostly interest, because interest is charged on the balance outstanding; as the balance falls, more of each payment goes to principal. The payment is the amount that brings the balance to zero exactly at the end of the amortization. The interest convention matters. Canadian fixed-rate mortgages quote a nominal annual rate compounded semi-annually, so the monthly rate is (1 + annual rate / 2)^(1/6) - 1, not the annual rate divided by twelve. On a 5% mortgage that makes the monthly rate 0.4124% rather than 0.4167%, and the payment a little lower. US mortgages conventionally compound monthly, which the second option reproduces. Property tax and home insurance are collected monthly into an escrow account in the United States and are paid directly in most of Canada; either way, they are part of what a household must budget each month. Mortgage insurance is different from home insurance: it protects the lender if the borrower defaults, and in Canada it is required when the down payment is below 20%. The amortization schedule shows how the split between interest and principal changes over time.
Formula
Monthly rate i = (1 + annual rate / 2)^(1/6) - 1 for semi-annual compounding, or annual rate / 12 for monthly compounding. Payment = principal x i / (1 - (1 + i)^-n), where n is the number of monthly payments and the payment is principal / n when i is zero. Total interest = payment x n - principal. Total monthly cost = payment + property tax / 12 + insurance / 12 + mortgage insurance + condo fee + other costs.
Worked example
A $400,000 mortgage at 5% over 25 years with semi-annual compounding has a monthly rate of 0.4124% and a payment of $2,326.42. Over 300 payments the total is $697,926, so the interest is $297,926. Adding $4,800 of property tax a year, $1,500 of insurance and no other costs adds $525 a month, for a total monthly cost of $2,851.42. Under monthly compounding the payment would be $2,338.36.
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Frequently asked questions
Why is the Canadian payment lower than the US one at the same rate?
Canadian fixed-rate mortgages compound semi-annually, so the effective monthly rate is slightly below one twelfth of the annual rate. US mortgages compound monthly. The difference is small but real over a long amortization.
Is mortgage insurance the same as home insurance?
No. Mortgage insurance protects the lender against default and is required in Canada when the down payment is under 20%. Home insurance protects the owner against fire, theft and liability. Both can appear on a monthly budget.
What happens if I pay extra?
The payment stays the same and the amortization shortens, or the lender recalculates the payment. Either way you pay less interest, because interest is charged on a smaller balance. This calculator assumes no extra payments.
Does the rate stay fixed?
This is a fixed-rate calculation. A variable-rate mortgage changes with the lender prime rate, and a payment can stay fixed while the amortization stretches, or the payment can change. Re-run the numbers at the new rate if yours is variable.
Why does the interest share fall over time?
Each payment covers the interest charged on the current balance and applies the rest to principal. As the balance falls, the interest charge falls, so more of the same payment reduces the balance.