The semi-annual compounding rule
The defining feature of a Canadian fixed-rate mortgage is set in federal law: interest must be compounded no more than twice a year. American lenders, by contrast, compound monthly. This calculator honours the Canadian convention by converting the posted annual rate into a true semi-annual rate and then deriving an equivalent monthly rate from it.
The practical effect is subtle but real. Because interest accumulates only twice a year rather than twelve times, the effective monthly rate is slightly below the annual rate divided by twelve. At the same posted rate, a Canadian-style loan therefore carries a marginally lower monthly payment than a US-style one.
Reading the payment and the interest split
The headline figure is the level monthly payment that clears the balance over the amortization period you entered. The total interest is everything you pay on top of the amount borrowed, and the total of payments is the two added together.
The donut chart shows how the lifetime cost divides between the principal you actually borrowed and the interest the lender charges. On a long amortization at a typical rate, interest can rival or exceed the principal itself, which is why the split is worth a look.
Term versus amortization
Canadians should keep two timelines distinct. The amortization is the full length over which the loan is scheduled to be repaid, often 25 years. The term is the shorter window, commonly five years, during which your contracted rate is locked in.
- At the end of each term you renew, usually at whatever rate prevails then.
- This tool assumes one constant rate across the whole amortization, so renewals at higher or lower rates are not modelled.
- A shorter amortization raises the monthly payment but sharply reduces total interest.
What this estimate excludes
The figures here cover principal and interest only. A real Canadian housing budget should also allow for property taxes, home insurance, condo or strata fees, and — where the down payment is under 20% — mortgage default insurance such as CMHC. Treat this as a planning estimate rather than a lender quote.
Formula
i = (1 + annualRate/200)^(1/6) − 1; n = years×12; payment = P·i·(1+i)ⁿ / ((1+i)ⁿ − 1)Frequently asked questions
- Why is the Canadian payment different from a US mortgage?
- Canadian fixed-rate mortgages compound interest twice a year by law, so the effective monthly rate is a little lower than simply dividing the annual rate by twelve.