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Canadian Mortgage Payment Formula:
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The Canadian mortgage payment formula calculates fixed monthly payments for fully amortizing loans. Unlike some countries, Canada does not allow mortgage interest tax deductions for primary residences, which affects the after-tax cost of borrowing.
The calculator uses the standard mortgage formula:
Where:
Explanation: This formula calculates the fixed payment needed to fully pay off (amortize) the loan over its term, including both principal and interest.
Details: In Canada, mortgage interest is not tax-deductible for primary residences (unlike in the U.S.). This makes the after-tax cost of borrowing higher compared to countries with mortgage interest deductions.
Tips: Enter the principal amount in CAD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years (typically 5-30 years).
Q1: Why is mortgage interest not tax-deductible in Canada?
A: Canadian tax policy treats primary residences differently than investment properties. Only mortgage interest on rental/investment properties is tax-deductible.
Q2: How does this affect home affordability?
A: The non-deductibility increases the after-tax cost of home ownership compared to countries with deductions, potentially reducing affordability.
Q3: Are there any tax benefits for homeowners in Canada?
A: Yes, principal residences are exempt from capital gains tax when sold, which can be a significant benefit.
Q4: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate mortgages. Variable rate mortgages would require more complex calculations.
Q5: Does this include property taxes and insurance?
A: No, this calculates only principal and interest payments. Canadian homeowners must typically budget separately for property taxes and insurance.