Why does Canada use semi-annual compounding?

The Canadian Interest Act requires that mortgage interest be compounded no more than semi-annually. The effective monthly rate is (1 + annual rate/2)^(1/6) - 1.

What is the maximum amortization in Canada?

25 years for insured mortgages (CMHC, under 20% down). Up to 30 years for uninsured mortgages with 20%+ down payment.

How does the mortgage stress test work?

You must qualify at the higher of your contract rate + 2% or 5.25%, regardless of your actual mortgage rate.

What is the minimum down payment in Canada?

5% on first $500K, 10% on $500K-$999K portion, 20% minimum for homes $1M+. CMHC insurance applies when down payment is under 20%.

What is the difference between amortization and term?

Amortization is total repayment period (25-30 years). Term is your locked-in rate period (typically 1-5 years), after which you renew.

Canadian Mortgage Calculator

Calculate payments with correct semi-annual compounding, CMHC insurance, and accelerated bi-weekly options. All figures in CAD.

Home Price

Down Payment

$20%

Interest Rate

Amortization

Payment Frequency

Monthly Payment

CA$3,468

CA$3,051 principal & interest

Principal & Interest: $3,051

Property Tax: $417

Mortgage Amount

CA$520,000

Total Interest

CA$395,313

Total Cost

CA$915,313

LTV Ratio

80.0%

How to Use This Canadian Mortgage Calculator

Enter your Home Price and Down Payment to get your estimated payment. The calculator automatically applies CMHC mortgage default insurance if your down payment is under 20%, and uses the correct Canadian semi-annual compounding method required by law.

Choose your Payment Frequency: accelerated bi-weekly payments split your monthly payment in two and pay every two weeks — resulting in 26 payments per year instead of 24, effectively making one extra monthly payment annually and shortening your amortization by several years.

The Formula: Canadian Semi-Annual Compounding

Effective monthly rate = (1 + annual rate / 2)^(1/6) - 1

Payment = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:
P = Total mortgage (including CMHC if applicable)
r = Effective rate per payment period
n = Total number of payments

Example at 5.09% annual:
Monthly r = (1 + 0.0509/2)^(1/6) - 1 = 0.4193% per month

This differs from US mortgages which use simple monthly compounding (rate/12). The Canadian Interest Act requires semi-annual compounding for fixed-rate mortgages, resulting in slightly different payments for the same stated rate.

Example: Buying in Toronto, Ontario

Michael and Lisa's Home Purchase

Combined income: $160,000. Purchasing a condo in Toronto's east end.

Home Price	$750,000
Down Payment (10%)	$75,000
Loan Before CMHC	$675,000
CMHC Premium (3.10%)	$20,925
Total Mortgage	$695,925
Rate (5.09%, 25-yr amort)	Monthly $4,063
Property Tax (est.)	$500/mo
Condo Fees	$650/mo
Total Monthly	$5,213

Switching to accelerated bi-weekly payments ($2,032 every two weeks) would save approximately $42,000 in interest and pay off the mortgage 2.5 years early.

CMHC Mortgage Default Insurance Rates

CMHC insurance is mandatory when your down payment is less than 20%. The premium is added to your mortgage balance (not paid upfront):

5% to 9.99% down: 4.00% of mortgage amount
10% to 14.99% down: 3.10% of mortgage amount
15% to 19.99% down: 2.80% of mortgage amount
20% or more: No CMHC required

CMHC insurance is only available on homes priced under $1.5 million (as of 2024). Homes $1M+ require a minimum 20% down payment.

Frequently Asked Questions

The Canadian Interest Act requires that mortgage interest be calculated no more frequently than semi-annually. This means the stated annual rate is compounded twice per year, not monthly as in the US. At 5%, the effective annual rate is 5.0625% with semi-annual compounding vs. 5.12% with monthly compounding — actually slightly lower than US-style mortgages.

For insured mortgages (CMHC, down payment under 20%), the maximum amortization is 25 years. For uninsured mortgages (20%+ down), lenders may offer up to 30 years. As of August 2024, first-time buyers and new construction buyers can access 30-year insured amortizations.

All mortgage applicants in Canada must qualify at the higher of: their contract rate + 2%, or 5.25%. For example, if your rate is 5.09%, you must qualify at 7.09%. This reduces the maximum mortgage you can get. The stress test applies to all federally regulated lenders, including banks.

Minimum down payments: 5% on the first $500,000 of purchase price; 10% on the portion between $500,000 and $999,999; 20% minimum for homes $1,000,000 and over. CMHC insurance is not available for homes over $1.5 million.

Amortization is the total time to pay off your mortgage (up to 25-30 years). Term is how long your current rate is locked in — typically 1 to 5 years. At the end of each term, you renew at current rates. Most Canadians choose a 5-year fixed term with a 25-year amortization.