Amortization Calculator Canada
What is Mortgage Amorization?
The mortgage amortization period is how long it will take you to pay off your mortgage. There is a difference between amortization and mortgage term. The term is the length of time that your mortgage agreement and current mortgage interest rate is valid for. The most common mortgage term in Canada is five years, while the most common amortization period is 25 years.
What is a mortgage amortization schedule?
A mortgage amortization schedule shows the amount of each mortgage payment, and how much of that payment will go towards the principal and the interest portions. As you pay off your mortgage, the principal that goes towards your mortgage principal will go up, while the interest portion of your mortgage will go down.
| # Payment | Beginning Balance | Principal | Interest | Ending Balance |
|---|---|---|---|---|
1 | $500,000.00 | $1,287.37 | $829.88 | $498,712.63 |
2 | $498,712.63 | $1,289.51 | $827.75 | $497,423.12 |
3 | $497,423.12 | $1,291.65 | $825.61 | $496,131.46 |
4 | $496,131.46 | $1,293.79 | $823.46 | $494,837.67 |
5 | $494,837.67 | $1,295.94 | $821.31 | $493,541.73 |
6 | $493,541.73 | $1,298.09 | $819.16 | $492,243.63 |
7 | $492,243.63 | $1,300.25 | $817.01 | $490,943.39 |
8 | $490,943.39 | $1,302.41 | $814.85 | $489,640.98 |
9 | $489,640.98 | $1,304.57 | $812.69 | $488,336.41 |
10 | $488,336.41 | $1,306.73 | $810.52 | $487,029.68 |
11 | $487,029.68 | $1,308.90 | $808.35 | $485,720.78 |
12 | $485,720.78 | $1,311.07 | $806.18 | $484,409.71 |
Mortgage Amortization Calculation
To create an amortization schedule, you’ll first need to find out the mortgage payment amount. The formula for calculating the mortgage payment is:
Where:
- M = Mortgage payment
- P = Principal balance of the mortgage
- r = Periodic interest rate
- n = Total number of payments
To build out the amortization schedule, you’ll need to calculate each payment's interest. Subtract that from your mortgage payment amount to calculate the principal amount. You can then use that to find out the ending balance for that payment period. This process then repeats for each payment.
Example Amortization Calculation
Let's say you take out a mortgage for $500,000 with monthly payments and semi-annual compounding, assuming the same mortgage rate of 5% applies for an amortization period of 25 years. This would result in the following calculation:
- 1. Calculate the mortgage payment
M = $2,908
Where an applied interest rate of 4.949%, based on semi-annual compounding, is divided by 12 to get a periodic interest rate for the month of 0.4124167%.
The monthly mortgage payment is $2,908.
- 2. Calculate the interest
The interest on a $500,000 beginning balance for 1 month would be based on the periodic interest rate of 0.4124167%.
Interest = $500,000 x 0.4124167%
Interest = $2,062
The interest in the first payment is $2,062
- 3. Calculate the principal paid
Since we have a fixed mortgage payment of $2,908, of which $2,062 will go towards paying interest, the rest is the principal payment.
Principal Payment = Payment - Interest
Principal Payment = $2,908 - $2,062
Principal Payment = $846
In the first payment, you’ll be paying down $846 of your mortgage principal.
- 4. Calculate the ending balance
With part of your principal being paid, subtract your principal payment from your mortgage balance to get the beginning balance for the next payment.
Ending Balance = Beginning Balance - Principal Payment
Ending Balance = $500,000 - $846
Ending Balance = $499,154
The ending balance after the first month is $499,154.
| # Payment | Beginning Balance | Principal | Interest | Ending Balance |
|---|---|---|---|---|
1 | $500,000.00 | $846.07 | $2,061.96 | $499,153.93 |
- 5. Repeat for all payments
The previous steps will now be repeated for all 300 monthly payments. The beginning balance is now $499,154. As the principal is lower, your interest will also be lower. This means your principal payment will also slightly increase with each payment that you make.
| # Payment | Beginning Balance | Principal | Interest | Ending Balance |
|---|---|---|---|---|
1 | $500,000.00 | $846.07 | $2,061.96 | $499,153.93 |
2 | $499,153.93 | $849.56 | $2,058.47 | $498,304.38 |
3 | $498,304.38 | $853.06 | $2,054.97 | $497,451.32 |
4 | $497,451.32 | $856.58 | $2,051.45 | $496,594.74 |
... | ... | ... | ... | ... |
300 | $2,896.08 | $2,896.08 | $11.94 | $0.00 |
The Impact of Interest Rates
One factor that greatly affects mortgage amortization is the interest rate with variable rate mortgages that have fixed payments. A higher interest rate means a larger portion of each payment will go towards paying off interest rather than the principal balance. This can increase the mortgage’s amortization if interest rates go up. If it goes high enough, your payment might not be enough even to cover the interest. That’s called hitting your mortgage’s trigger rate.
On the other hand, a decreasing interest rate means a larger portion of each payment will go toward paying off the principal balance. This can result in paying off a variable mortgage faster.
How does mortgage amortization work?
The amortization period is based on a set number of regular and constant mortgage payments. If the frequency or amount of your mortgage payments changes, then your amortization period will also change.
If you make more frequent mortgage payments, such as by changing from a monthly payment to an accelerated bi-weekly payment, then your amortization period will decrease. This means that you will be paying off your mortgage faster while also saving in interest costs. Taking advantage of particular prepayment privileges that some mortgage lenders offer, such as RBC’s Double-Up prepayment option or BMO’s 20% annual lump-sum prepayment option, will also reduce your amortization period.
Most banks offer some form of mortgage payment deferral to help homeowners during difficult financial periods. TD, for example, allows you to skip the equivalent of one monthly mortgage payment once per year. These skip-a-payment options don’t mean that you’re off the hook for the payment amount. The interest of the skipped payment will be added to your mortgage principal, lengthening your amortization period and resulting in more interest paid in the long-run.
What amortization period is best for me?
The mortgage amortization period that you choose will affect the amount of your mortgage payments and the overall interest paid on your mortgage. Longer amortization periods will spread out the length of your mortgage. This means that each mortgage payment will be relatively smaller, which can help make payments more affordable for cash-strapped homeowners. However, this will result in more interest being paid overall.
It is best to choose as short of an amortization period that you can comfortably afford to pay. While this does mean that each payment will be larger, you will be able to pay off your mortgage faster and save potentially thousands in interest costs. You can check your budget using a mortgage affordability calculator.
Longest Mortgage Amortization Period in Canada
Some mortgage lenders offer 35-year and even 40-year amortization periods. Based on data from major financial institutions, over 11.4% of mortgages had an amortization period of over 35 years as of Q3, 2024. While there is no set limit on the maximum mortgage amortization period for uninsured mortgages, the maximum for insured mortgages is 25 years. You will require mortgage insurance if you make a mortgage down payment of less than 20%.
Can I change the amortization period?
You can change your amortization period by refinancing once your mortgage term expires. When refinancing you might want to extend your amortization period to make your mortgage payments more affordable. If you now have more income, you might want to consider shortening your amortization period and paying larger mortgage payments. Refinancing your mortgage comes with additional paperwork, fees, and a mortgage stress test depending on your mortgage lender. For example, you can skip the mortgage stress test by refinancing with a private mortgage lender.
Your amortization period will also be affected by any actions you take during your mortgage term, such as changes to your payment frequency or changes to your payment amount, including additional prepayments or skipping a mortgage payment.
Negative Amortization Mortgages
Some mortgage lenders offer mortgages with a negative amortization period, also known as reverse mortgages. This means that the amount that you owe on your mortgage will grow even as you make mortgage payments. Reverse mortgages are often used to unlock equity in your house that you can then use in retirement. Compared to a home equity line of credit (HELOC), you do not have to make any payments at all. Instead, interest is added to your mortgage balance. In Canada, you must be at least 55 years old to be eligible for a reverse mortgage.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.