How this calculator works
Canadian mortgages work differently from UK and US mortgages in one important, legally mandated way. TheInterest Act (R.S.C. 1985, c. I-15, s. 6) requires that interest on a fixed-rate mortgage be calculated as if compounded semi-annually, not in advance — even though you actually make monthly payments. That produces a true effective monthly rate:
c = (1 + i/2)2/12 − 1
which is slightly lower than simply dividing the quoted annual rate by 12. Variable-rate mortgages aren't covered by this rule in practice — lenders compound them monthly, exactly like a nominal-rate loan elsewhere (c = i / 12). Once the correct effective monthly rate is derived, the payment itself uses the same standard amortising-loan formula used everywhere: M = P × r × (1+r)n ÷ ((1+r)n − 1).
Worked example
Take a $500,000 home with a $100,000 down payment (a $400,000 loan) at a 5% fixed rate over a 25-year amortization. Because of semi-annual compounding, the true effective monthly rate works out to about 0.4124% rather than the naive 0.4167% (5% ÷ 12) — producing a monthly payment of roughly $2,326. The same nominal 5% rate on a variable-rate mortgage, compounded monthly in the usual way, produces a slightly higher payment of about $2,338 — a small but real difference purely down to the compounding convention, not the quoted rate itself.
What affects your monthly payment
- Interest rate — the single biggest lever, and remember that fixed and variable rates compound differently even at the identical nominal rate.
- Amortization period — up to 25 years on an insured (high-ratio) mortgage, up to 30 years if you have 20%+ down (or are a qualifying first-time buyer purchasing new construction).
- Rate type — fixed-rate mortgages use semi-annual, not-in-advance compounding by law; variable-rate mortgages compound monthly.
- Prepayments — most Canadian lenders allow penalty-free prepayments up to a set percentage of the original principal each year — see our Prepayment Calculator.
A note on accuracy
This calculator computes on full, unrounded figures throughout and only rounds to the nearest cent for display, so the amortization schedule doesn't drift from cumulative rounding. It reflects principal and interest only — it does not include property tax, condo fees, or CMHC/Sagen/Canada Guaranty mortgage default insurance premiums, which are handled by our dedicated CMHC Insurance Calculator. For official background on Canadian mortgage rules, see the Canada Mortgage and Housing Corporation (CMHC)and the Interest Act.