1. What is the Canadian Mortgage Payment Formula?

The Canadian mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This standard formula is used by Canadian financial institutions for fixed-rate mortgages.

2. How Does the Calculator Work?

The calculator uses the mortgage payment formula:

Where:

• \( P \) — Principal loan amount (CAD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (years × 12)
• \( PMT \) — Monthly mortgage payment (CAD)

Explanation: The formula accounts for compound interest and ensures the loan is paid off exactly by the end of the term.

3. Importance of Amortization

Details: Amortization shows how each payment is split between principal and interest over time. In early years, most payments go toward interest; later, more goes toward principal.

4. Using the Calculator

Tips: Enter the principal amount in CAD, annual interest rate (without % sign), and select amortization period. The calculator shows monthly payment and a partial amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between term and amortization?
A: Amortization is total time to pay off the mortgage (typically 25-30 years). Term is the length of your current contract (typically 1-5 years).

Q2: Are Canadian mortgages compound interest?
A: Yes, Canadian mortgages typically use semi-annual compounding, but payments are calculated monthly.

Q3: What is a typical amortization period in Canada?
A: Standard is 25 years, though some lenders offer up to 30 years for qualified buyers.

Q4: How does prepayment affect amortization?
A: Extra payments directly reduce principal, shortening amortization and reducing total interest paid.

Q5: What's the stress test rate?
A: Canadian borrowers must qualify at the higher of their contract rate + 2% or 5.25% (as of 2023).