By Sandra MacGregor on December 8, 2022
Estimated Reading Time: 5 minutes

Mortgage payment calculator

By Sandra MacGregor on December 8, 2022
Estimated Reading Time: 5 minutes

Use a mortgage payment calculator to understand what a mortgage will cost you in real terms.

For the majority of Canadians, buying a home will be the single biggest purchase they ever make, and getting a mortgage is an essential part of this process. But how do you ensure you get a mortgage that you can actually afford over the long term? That’s where a mortgage payment calculator comes in.

Why use a mortgage payment calculator?

Just how much a home mortgage will end up costing you over the long haul can be hard to fully grasp, especially when you factor in interest. A mortgage payment calculator is an indispensable tool that will help you understand what your payments will be over time. It also gives you a more accurate sense of what you can afford.

By using a mortgage calculator to estimate your payments, you’ll have a more realistic picture of the options available to you—and you’ll be better placed to assess mortgage products. In short, a mortgage payment calculator can help you see how a mortgage fits within your current financial plans, as well as how it may affect your future goals.

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How are mortgage payments calculated?

By plugging a few key numbers into a mortgage payment calculator, you’ll get a reliable estimate of your regular payment amount. Here are the most important variables that determine your mortgage payments:

Down payment amount: The size of your down payment and the purchase price of your home will determine the amount of money you need to borrow for your mortgage. (Note: You’ll need to have the minimum down payment required in Canada, which is tied to the value of the home.) Your mortgage amount is calculated by subtracting the down payment from the purchase price. If your down payment represents less than 20% of the purchase price, you will have to add the cost of mortgage default insurance. Our calculator does this for you—simply enter the purchase price of the home and the size of your down payment.
Amortization period: The number of years it will take you to repay the mortgage in full. The amortization should not be confused with the mortgage term, which is the period of time your mortgage contract is in effect. Buyers typically complete several terms before paying off the loan. Borrowers with less than a 20% down payment must have mortgages amortized over 25 years or less. Those with more than 20% also have access to 30-year mortgages.
Interest rate: The rate of interest you’ll pay on any outstanding mortgage balance. Your rate will depend on trends in the economy and the terms of your mortgage, such as whether you decide to go with a fixed or variable rate, among other factors.
Payment frequency: The interval at which you make your mortgage payments. The calculator above allows you to select monthly, bi-weekly or accelerated bi-weekly payments; however, borrowers can sometimes also pick from semi-monthly, weekly and accelerated weekly payment options. The frequency of your payments will influence how many payments you make per year and the size of each payment. It also impacts how much interest you will pay over the life of the loan. The more frequent your payments, the faster you’ll pay down the debt.

To calculate your mortgage payments, enter these details into the mortgage payment calculator. (The calculator will automatically display the best rates available in your region, but you can also enter your own rate.) The calculator then shows monthly payments across four different scenarios, based on the information you provided. You can alter any of the variables to view how your regular mortgage payment would be affected.

If your down payment represents less than 20% of the purchase price, the cost of mortgage default insurance is automatically calculated and incorporated into your regular mortgage payment.

How to manually calculate your mortgage payments

When you need to quickly calculate what your mortgage payment will be, you should probably use a mortgage payment calculator. However, if you prefer to write things out, or if you simply want to understand the math behind your mortgage payments, you can use the formula below:

Monthly payment = P x (I x (1 + I)^N ) / ((1 + I)^N – 1)

P = Mortgage principal
I = Monthly interest rate
N = Number of payment periods

If you run into any issues while solving the formula, you can follow this step-by-step guide. Note: The formula will only help you calculate your monthly mortgage payment—a bi-weekly or accelerated bi-weekly payment would be calculated differently.

How to calculate your principal and interest payment

Mortgage payments are made up of two parts: the first portion covers the principal (the amount originally borrowed) and the other covers the interest (the fee levied by the lender).

Unlike a traditional principal-plus-interest loan, mortgage payments follow a blended payment structure. This means the proportions of your payment that are principal and interest are pre-determined and set out in your amortization schedule. Your mortgage payments remain the same (as long as there are no changes in the interest rate), even though the portion that is interest declines over the amortization period.

For example, let’s say you purchase a $500,000 home with a 5% down payment, and your $475,000 mortgage is amortized over 25 years at a fixed interest rate of 2.79%. In this scenario, your monthly mortgage payment comes to $2,285. During the first year of your mortgage, you will pay $13,892 towards the principal and $13,527 in interest. In the final year, you will pay $27,012 towards the principal and only $408 in interest—even though your mortgage payments stay the same.

The mortgage payment calculator above displays the amount of interest and principal paid during each year of your mortgage—to view, click the Amortization Schedule tab.

How to lower your mortgage payments

If you’re not comfortable with the mortgage payment estimates you’re getting, keep in mind there are ways you can lower them. For example, you can look for a house with a lower purchase price or make a larger down payment (both will reduce the size of your mortgage). You can opt for a longer amortization, although that will cost you more in interest over time. You can also shop around for a lower mortgage rate or work with a mortgage broker who has access to many lenders.

More on mortgage calculators:

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