How mortgage payments work in Canada

Know your numbers

Principal is the amount you borrow, usually the home price minus your down payment. Amortization is how long it would take to pay off the whole loan; the term is how long your current contract lasts. A payment estimate doesn't include all the costs of owning a home.

Example: how the rate becomes a payment

Say you borrow $400,000 at 5%, compounded twice a year, over 25 years with monthly payments. The monthly rate is (1 + 0.05 ÷ 2)^(1 ÷ 6) − 1. Spreading the loan over 300 monthly payments gives about $2,326.42 a month.

That's an illustration, not a lender's offer. It leaves out insurance, fees, property tax and future rate changes, and a contract that compounds differently would give a different payment.

Regular and accelerated payments

In the calculator, regular bi-weekly payments are a year of monthly payments divided by 26. Accelerated bi-weekly payments are half the monthly payment, 26 times a year, which adds up to 13 monthly payments. In the example above, that's about $1,163.21 every two weeks. You pay more each year, so the loan is paid off sooner.

Look at the whole loan

Look at the total interest and how payments fit your cash flow, not just the payment size. Your contract decides whether you can pay extra and what penalties apply, so check it before planning an accelerated schedule or lump sums.

• Confirm the amount, how the rate is compounded and how often you pay.
• Budget for the costs of owning a home on top of the payment.
• Run the numbers again when your term renews.