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Mortgage math

Semi-annual compounding

The Canadian standard for fixed-rate mortgages: interest is calculated on a semi-annual basis and applied to the daily balance. Makes Canadian rates look slightly higher than the US equivalent on a monthly-compounding basis.

By law, Canadian fixed-rate mortgages compound interest semi-annually, not monthly. The practical effect is that your effective annual cost is a touch lower than the same nominal rate would be under monthly compounding — a quirk that makes Canadian rates not directly comparable to US ones.

You don't have to do this math yourself, but it's why a generic (monthly-compounding) online calculator can show a slightly different payment than your lender's. Variable-rate mortgages typically compound monthly instead.

Our payment and affordability calculators use the correct Canadian semi-annual method, so the figure you see matches what your lender will actually charge.

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Monthly paymentFixed-rate mortgage

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Amortization

The length of time over which your mortgage is fully paid off. Canadian conventional limits: 25 years for insured, up to 30 for uninsured (or 30 for first-time buyers on new construction). Longer amortization = lower payment but more lifetime interest.

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

Your loan amount divided by the property value. 80% LTV = 20% down. Maximum LTV on insured purchases is 95% on first $500K, 90% above.

Monthly payment

Principal + interest payable each month, calculated using Canadian semi-annual compounding. Insured files can switch to bi-weekly accelerated payments to shave years off the mortgage.

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.

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