Canadian Mortgage Calculator

What is a Canadian Mortgage Calculator?

A Canadian Mortgage Calculator is a financial tool designed to help potential homeowners and current mortgage holders estimate their mortgage payments. It takes into account factors specific to the Canadian mortgage market, such as the mortgage amount, interest rate, amortization period, and payment frequency.

Formula for Canadian Mortgage Calculation

The formula used in Canadian mortgage calculations is:

\[PMT = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1}\]

Where:

• PMT = Periodic Payment
• P = Principal (Loan Amount)
• r = Periodic Interest Rate (annual rate divided by the number of payment periods per year)
• n = Total Number of Payments (number of years × number of payments per year)

Calculation Steps

1. Determine the periodic interest rate by dividing the annual rate by the number of payment periods per year.
2. Calculate the total number of payments by multiplying the amortization period (in years) by the number of payments per year.
3. Apply the formula to calculate the periodic payment.
4. Calculate the total interest paid by multiplying the periodic payment by the total number of payments and subtracting the original loan amount.

Example

Let's consider a scenario with the following details:

• Mortgage Amount: $300,000
• Interest Rate: 3.5% per year
• Amortization Period: 25 years
• Payment Frequency: Monthly

Calculation:

1. Periodic interest rate: 3.5% / 12 = 0.2917% per month
2. Total number of payments: 25 years × 12 months = 300 payments
3. Monthly payment: $1,498.88 (using the formula)
4. Total interest paid: ($1,498.88 × 300) - $300,000 = $149,664

In this example, the borrower would pay $1,498.88 per month. Over the 25-year amortization period, they would pay a total of $149,664 in interest.

Note: Canadian mortgages typically have terms shorter than the amortization period, usually 1-5 years. After each term, the mortgage is renewed, potentially at a different interest rate. This calculator assumes a fixed rate for the entire amortization period for simplicity.