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Mortgage math

Amortization

Definition

The total length of time it would take to pay your mortgage off completely if the rate and payments stayed the same.

In Canada, insured mortgages (under 20% down) are capped at 25 years, or 30 years for first-time buyers and buyers of new builds; with 20% or more down, the lender sets the maximum (commonly 30 years). A longer amortization lowers the payment but raises lifetime interest.

Amortization is the whole payoff runway; your term (typically 1 to 5 years) is only the current contract inside it. A 25-year amortization usually spans five or more separate terms, each renewed at the rate of the day, before the balance reaches zero.

The federal rules changed on December 15, 2024: 30-year amortizations on insured mortgages were opened to all first-time buyers and to all buyers of newly built homes. Everyone else with less than 20% down is still limited to 25 years. Uninsured mortgages are not subject to the federal insured cap; the lender sets the limit.

Stretching to 30 years lowers the monthly payment and can make the difference in qualifying, but it adds tens of thousands in lifetime interest. A common middle path is a longer amortization for qualifying room, then lump-sum or increased payments to shorten it in practice.

Our payment and affordability calculators let you flex the amortization and see the trade-off between monthly cash flow and total interest.

Worked example

Illustrative: a $500,000 mortgage at an assumed 4.00% rate (Canadian semi-annual compounding, rate held constant for simplicity).

25-year amortization: about $2,630/month, roughly $289,000 of total interest over the life of the loan.

30-year amortization: about $2,378/month, roughly $356,000 of total interest. The payment is about $252/month lower, but lifetime interest is about $67,000 higher.

Illustrative figures only, rounded; not a quote or current rate. See today’s rates on our live board.

Sources

  1. Mortgage terms and amortization (Financial Consumer Agency of Canada)
  2. Boldest mortgage reforms in decades come into force today (Dec 15, 2024) (Department of Finance Canada)
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More on Mortgage math

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Equity

The difference between your home's current value and your remaining mortgage balance. Equity is what you can borrow against (HELOC, refinance) or what you keep when you sell.

LTV

Loan-to-Value ratio

Loan-to-value ratio: your mortgage balance divided by the property's value (the lower of purchase price or appraised value on a purchase). 80% LTV means 20% equity. Insured purchases can go up to 95% LTV on homes of $500,000 or less; above that, the 10% down-payment tier lowers the maximum.

Monthly payment

Principal + interest payable each month. Canadian fixed-rate mortgages are normally quoted with semi-annual compounding. Most lenders let you switch to accelerated bi-weekly or weekly payments to pay the mortgage off sooner.

Principal

The amount you actually borrowed. Each payment is split between principal (which reduces your balance) and interest. Early years are mostly interest; late years are mostly principal.

Semi-annual compounding

The Canadian convention for fixed-rate mortgages: the quoted annual rate compounds twice a year rather than monthly. At the same quoted rate, semi-annual compounding costs slightly less than monthly compounding, so a Canadian rate isn't directly comparable to a U.S. monthly-compounded one.