A regular mortgage payment covers the interest due for a period and reduces principal. The result depends on the Canadian rate convention, payment frequency, amortization, prepayments, fees, and the lender agreement.
The level-payment formula
For a fixed periodic rate and equal payments, the standard amortization formula uses principal P, periodic rate r, and number of payments n.
Payment = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)Canadian fixed-rate mortgage convention
Canadian fixed-rate mortgage examples commonly disclose interest compounded twice per year but charged monthly. To estimate a monthly payment, the nominal semi-annual rate must be converted to an effective monthly rate before using the payment formula.
Monthly rate = (1 + annual nominal rate ÷ 2)^(1/6) − 1Standard and accelerated payment frequencies
FCAC lists monthly, semi-monthly, biweekly, weekly, accelerated biweekly, and accelerated weekly options. Standard frequencies preserve approximately the same annual payment amount. Accelerated biweekly uses half the monthly payment 26 times per year, while accelerated weekly uses one quarter of the monthly payment 52 times per year. Both make the equivalent of one extra monthly payment annually.
| Frequency | Payment definition |
|---|---|
| Monthly | Monthly payment |
| Semi-monthly | Monthly payment ÷ 2 |
| Biweekly | Monthly payment × 12 ÷ 26 |
| Weekly | Monthly payment × 12 ÷ 52 |
| Accelerated biweekly | Monthly payment ÷ 2 |
| Accelerated weekly | Monthly payment ÷ 4 |
Term versus amortization
The term is the period covered by the current mortgage contract. Amortization is the planned time to repay the entire balance. A 25-year amortization can include several shorter terms and future rates that are unknown today.
Extra payments and prepayment privileges
Increasing regular payments or making lump sums may reduce interest and shorten the payoff period. A closed mortgage may limit the amounts or dates allowed without a penalty, so an estimated saving is not permission to make the payment.
- Check the contract's regular-payment increase limit
- Check the annual lump-sum amount and permitted date
- Ask the lender about charges before exceeding a privilege
What an estimate leaves out
- Fees, optional insurance, property taxes, and mortgage default insurance
- Changes at renewal or under a variable rate
- Lender-specific payment dates and rounding
- Prepayment penalties and contract restrictions
- Qualification rules and affordability assessments