Canadian Mortgage Payment Calculator

This calculator will help you figure monthly mortgage payments on a Canadian home loan. Once you are done with your calculation you can generate a printable amortization schedule.

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Know the Basics of the Canadian Real Estate Market

Canada is the second largest country by land area next to the United States. It is also known for its thriving economy with well-developed trade networks, as well as rich natural resources, and culturally diverse populations. In 2020, it ranked 16th in the Human Development Index, which rates countries according life expectancy, education level, and gross national income per capita.

With these qualities in mind, it’s no wonder many people aspire to move to Canada. And with the Canadian government supporting immigrants and refugees, it’s open to foreigners looking to settle in the country. According to Immigration.ca, the Canadian Liberal government set to welcome 300,000 immigrants per year as the norm since 2015.

Whatever your reasons for moving to Canada, it’s important to understand how their mortgage market works. While you might be familiar with the US mortgage system, be prepared to face changes once you decide to buy a home in Canadian territory.

Our guide will discuss the fundamentals of Canadian mortgages, such as the qualifying process, terms and payment structures, and different types of mortgages. We’ll compare the Canadian real estate process with US mortgages. We’ll also talk about how Canadian mortgages are computed differently compared to US home loans.

Securing a Mortgage in Canada

Just like the US, Canadian lenders perform careful background and credit checks before granting a mortgage. Lenders base loan approvals on your income and assets, level of debt, credit report and credit score, and how much down payment you can offer.

Homebuyers in Canada are advised to undergo pre-qualification and pre-approval to secure a mortgage. Pre-qualification is a good step when you’re considering buying a home. It’s an informal evaluation that gives you an idea how much a bank might be willing to lend. While this is not an official loan amount, it’s a good way to know if you satisfy basic mortgage requirements.

On the other hand, applying for pre-approval is a more serious step toward homeownership. It’s a formal commitment from a financial institution to lend a specific amount at a set rate. Since it specifies an actual amount, you can start shopping for homes within a price range.

Once you get pre-approved, the mortgage rate is honored for 120 to 160 days. This means if market rates change, you’re protected while still looking for a home. If the rate decreases during this time, the lender should also honor the lower rate. Furthermore, securing pre-approval gives you higher chances of obtaining a mortgage with a competitive offer.

As for the required paperwork, make sure to gather the following documents before applying for pre-approval:

• Government issued ID – passport, driver’s license, etc.
• Proof of employment and income – paystubs, bank statements, income tax returns
• Proof you can make down payment and closing costs – savings accounts
• Information about debts and financial obligations – auto loans, credit card balances, child support etc.
• Supporting documents about other assets

*If a family member is giving you money to help cover the down payment, they must provide a signed letter declaring that the money is a gift that should not be repaid.

Save Enough for Down Payment

In Canada, the down payment is based on your home’s purchase price. Generally, homes priced at a lower range have a lower minimum down, while properties with a higher price require a larger minimum down payment. The minimum down payment for homes priced below $500,000 is 5%. However, making a down payment below 20% requires you to pay mortgage default insurance (MDI). In some instances, homebuyers with poor credit history or those who are self-employed may be required to make a larger down payment.

The following chart details the required down payment according to the home’s price:

Home’s Purchase Price	Minimum Down Payment Amount
Less than $500,000	5% of the purchase price
$500,000 – $999,999	5% of the first $500,000, and 10% of any amount over $500,000
$1,000,000	20% of the purchase price

The amount of down payment you offer influences the price of the home you can afford, the size of your mortgage and monthly payment, and the amount of MDI insurance paid.

To maximize your mortgage savings, you should ideally save 20% down on your home. This helps avoid the added cost of MDI and lowers the total amount you borrowed. As a result, it decreases your monthly mortgage payment. Making a large down payment also helps you gain greater home equity.

Mortgage Default Insurance

Homebuyers paying less than 20% down payment are required by the Government of Canada to pay mortgage default insurance (MDI). This protects lenders in case the homebuyer defaults or fails to make payments. It is only eligible for properties that cost less than $1 million, and mortgages with a maximum amortization of 25 years. It is required for the entire life of the loan.

MDI allows homebuyers to purchase a house with a small down payment, as long as you satisfy the lender’s qualifications and the mortgage insurer’s underwriting standards. This premium is based on the percentage you borrowed on your home’s total value, which can be added to your mortgage. In 2020, MDI costs ranged between 2.08% to 4.00% of the loan amount.

Over half of Canadian homeowners take some form of mortgage insurance. This is likely because homeowners in Canada are held fully liable even if they default on their loan. If their home is foreclosed, lenders may still come for their assets and even a portion of their wages to clear their debt. As such, they rely on MDI to help cover their debt in case of foreclosure.

MDI is offered by three major insurers:

• Canada Mortgage and Housing Corporation (CMHC)
• Canada Guaranty Mortgage Insurance Company
• Genworth Financial, now known as Sagen

CMHC is the largest mortgage insurance provider in Canada. As a response to the economic crisis caused by COVID-19, CMHC tightened requirements in July 1, 2020. To qualify for CMHC default mortgage insurance, borrowers must now satisfy the following requirements:

• Must have a GDSR of less than 35%
• Must have a TDSR of less than 42%
• Must have a credit score of at least 680
• Must not use borrowed funds as down payment

The following chart details premium CMHC MDI rates for different down payment scenarios:

LTV Ratio	Down Payment	Total Loan Premium	Portability Premium Loan Amount Increase
Up to 65%	Up to 35%	0.60%	0.60%
Up to 75%	Up to 25%	1.70%	5.90%
Up to 80%	Up to 20%	2.40%	6.05%
Up to 85%	Up to 15%	2.80%	6.20%
Up to 90%	Up to 10%	3.10%	6.25%
Up to 95%	Up to 5%	4.00%	6.30%

Chart from CMHC

On the other hand, the counterpart of MDI in the US is private mortgage insurance (PMI). US homebuyers are also charged an added mortgage insurance if they pay less than 20% down on a home with a conventional mortgage. But unlike MDI, PMI is automatically removed once the borrower’s loan-to-value ratio (LTV) reaches 78%.

Track Your Credit Score

In Canada, credit scores typically range between 300 to 900, and the two main credit bureaus are Equifax and TransUnion. Your mortgage may be approved if your credit score is between 620 to 680, depending on your lender.

According to Loans Canada, the minimum credit score for mortgage approval in 2021 is 640. If your score is within the 800 to 900 range, it’s considered an excellent standing. This means you automatically qualify for an ‘A level lender,’ such as a major bank that offers the best mortgage rates.

Before applying for any loan, make sure to check your credit report. You can get a free copy of your credit report by requesting via email, phone, or in person at Equifax.

Evaluating Mortgage Affordability

In the US, lenders review your debt-to-income ratio (DTI) to assess if you have enough income to pay for a mortgage together with your housing-related expenses and other debt obligations. DTI is a percentage that measures your mortgage payments compared to your gross monthly income. There are two main types of DTI ratios in the US market:

• Front-end DTI – This ratio represents your mortgage payments and other housing expenses such as property taxes and homeowners association dues. For conventional loans, the front-end DTI limit is usually around 28%.
• Back-end DTI – This ratio includes expenses in your front-end ratio together with other debt obligations such as car loans, credit card bills, etc. The back-end DTI limit for conventional loans is ideally 36% but can be up to 50% with compensating factors.

A higher DTI ratio suggests you are not in a good financial standing to take on more debt. Likewise, a lower DTI ratio means you have enough money to consistently afford mortgage payments. Thus, maintaining a low DTI ratio by reducing your debts increases your chances of mortgage approval.

Canadian lenders also refer to similar concepts of debt ratios. These are called the gross debt service ratio and the total debt service ratio. Here’s what each debt ratio stands for:

• Gross Debt Service Ratio (GDSR) – The percentage of income required to afford your mortgage payments, property tax, heating, and maintenance fees. If you’re buying a condominium, it includes 50% of the condo fees. This is similar to front-end DTI in the US. Borrowers who have an Equifax score of 680 and up are allowed a GDSR of up to 39%.
• Total Debt Service Ratio (TDSR) – The percentage of income needed to cover expenses under GDSR, including other debt obligations such as auto loans, credits card debt, student loans, etc. It also includes expenses for other properties you may own. This is similar to back-end DTI in the US. Borrowers who have an Equifax score of 680 and above are allowed a TDSR of up to 44%.
  
  Having low GDSR and TDSR means you have enough income to cover monthly mortgage expenses. Again, maintaining lower debt ratios leads to higher chances of mortgage approval. Note that GDSR and TDSR limits depend on your lender and credit score. Institutions such as the CMHC strictly imposes debt services ratios of 35% (GDSR) and 42% (TDSR).

How Mortgages in Canada Work

Most home loans in Canada have a standard term of 25 years, which are structured as hybrid adjustable-rate mortgages. In contrast, the most common type of loan in the US is a 30-year fixed-rate loan. This maintains the same rate for the entire duration of the mortgage. Home loans with longer terms are typically assigned higher interest rates.

Canadian mortgage terms can run as short as 5 years or as long as 30 years, but many loans are shorter than 30-year terms. Since most mortgages in Canada are hybrid adjustable-rate loans, they typically come with a fixed rate for the first 5 years. This initial period can be as short as 6 months or longer than 5 years.

After the initial fixed-rate period, you’re expected to renegotiate or renew the loan and keep making payments until your mortgage is paid off. This is also the time to assess if you need to change your lender, especially if you find more favorable terms.

Your lender should send a renewal statement within 21 days before your initial term ends. The statement will contain information on your balance upon renewal, the new interest rate, and the term of the renewed loan, together with associated fees. However, if your lender decides not to renew your mortgage due to poor payment history or other reasons, you will be notified 21 days before the end of your initial term. When this happens, you should look for another lender to renew your loan.

Furthermore, Canadian mortgage interest is compounded semi-annually. This means the interest rate is applied to your loan’s principal and accumulated interest every 6 months. Generally, Canada does not permit mortgage interest deductions for homeowners. However, Canadian homeowners do not have to pay capital gains taxes when they sell their property. In contrast, US mortgage interest is calculated monthly. Mortgage interest is tax deductible up to a certain amount for US homeowners. The Canadian government typically only allows deductible interest on loans for the purposes of investment, which should meet Canada Revenue Agency (CRA) guidelines.

Because mortgage interest is computed differently, expect your payment amount to be different in Canada. If you took the same mortgage terms in the US, this means your monthly payment will be slightly lower because the interest is compounded semi-annually.

For instance, suppose you bought a $300,000 house and made a 20% down payment ($60,000) to avoid MDI. Your mortgage is $240,000 at 5% interest rate with a loan term of 25 years. In the US, your monthly principal and interest payment would cost $1,403.02. But with the same terms in Canada, your monthly principal and interest payment will cost $1,395.85.

If you’re buying a house in Canada, use the above calculator to compute your mortgage payments and prepare your finances.

Types of Mortgages in Canada

The Canadian mortgage market classifies home loans into three main types. These are called insured mortgages, insurable mortgages, and uninsurable mortgages.

• Insured Mortgage: A home loan is called an insured or high-ratio mortgage if you’re required to pay MDI. Because MDI is an added cost on the loan, most lenders usually offer the lowest rates on this type of mortgage.
• Insurable Mortgage: Also called conventional or low ratio mortgage, a loan is an insurable mortgage when a borrower makes at least 20% down on the home’s price. This means you’re not obligated to pay MDI. But because MDI is not required, this type of loan is slightly riskier for lenders. Thus, lenders often place higher interest rates on insurable mortgages compared to insured mortgages.
• Uninsured Mortgage: As the name suggests, these are home loans that do not follow Canadian government guidelines for insured mortgages. Examples of this include homes worth more than $1 million or mortgages with 30-year terms. Since these loans are uninsured, they are assigned the highest mortgage rates. In the US, uninsured mortgages are similar to non-conforming or jumbo mortgages. This is mainly because jumbo loans also do not adhere to housing loan limits set by the US government for conforming conventional loans.

The following are other types of Canadian mortgages based on payment structure:

Open Mortgage

This type of home loan provides borrowers flexibility to pay their mortgage at any time without penalty. Open mortgages are typically only available for short terms, which is 5 years or less. Though some lenders may offer open mortgages at variable rates (adjustable rates) with longer terms. Expect open mortgages to have higher rates than closed mortgages with similar terms.

Closed Mortgage

This type of mortgage cannot be renegotiated, refinanced, or prepaid by the borrower before the maturity date. Unless a lender specifies it in the terms, closed mortgages may not allow renegotiation. For instance, closed mortgages usually come with prepayment privileges, which allow you to make extra payments up to a certain amount.

Fixed-rate Mortgage

When you take a fixed-rate mortgage, the interest rate remains locked for the whole term. Your rate is fixed until the mortgage is due for renewal. Fixed-rate mortgages are commonly offered at 5 year terms, but others can be longer. It’s the most popular option for Canadians because it guarantees the same payments for the entire term. The rates are based on the Government of Canada bond yields.

Variable-rate Mortgage (VRM)

With a VRM, the interest rate is subject to change throughout the term. This is based on the Bank of Canada’s lender prime rates, which is the interest rate on loans that banks offer to their best clients. VRMs are arranged based on the current interest rate. The mortgage is reviewed by the lender at specific intervals to determine if the market rate has changed. Based on the latest rate, the lender may adjust the size of your payment, the length of your amortization period, or both.

If you’re a first-time homebuyer in Canada, you can take advantage of the following mortgage incentives to help you save:

Incentive	Details
RRSP Home Buyer’s Plan	Allows first-time home buyers to withdraw up to $25,000 from their Registered Retirement Savings Plan (RRSP) to finance a down payment. In some cases, it can be up to $50,000. Your RRSP must be at least 90 days old and you should sign an agreement to build or buy a home. The withdrawal is tax-free if you repay your mortgage within 15 years,
First-Time Home Buyers’ (FTHB) Tax Credit	This provides you with a $5,000 non-refundable income tax credit amount. You’re qualified if you purchase a home after January 27, 2009. It also offers up to $750 of federal tax relief to qualified applicants.
GST/HST New Housing Rebate	The program reimburses qualified homebuyers for a part of the GST/HST paid on the home’s price or the cost of building a new home. It can also be used to renovate or build a major addition into an existing residence or convert a non-residential property into a home.
Land Transfer Tax Rebate	First-time homebuyers can receive a rebate on a part of the land transfer tax they paid. You are qualified for this incentive if you reside in Ontario, British Columbia, and Prince Edward Island. Residents in the City of Toronto are also eligible for the rebate.

Chart from Young and Thrifty

Mortgages After Filing for Bankruptcy in Canada

In some cases, people may experience financial hardships especially after losing their job or going through a financially draining illness. During these times, some people may file for bankruptcy to surrender their assets and discharge their debts. However, there are some exceptions, which means not all your debts are automatically discharged.

When a borrower files for bankruptcy, Canadian law forbids secured lenders to cancel a loan. If you’ve made timely mortgage payments (and you can still afford it), you should continue making payments even during bankruptcy. In this scenario, the good news is you can still keep your home.

However, if you’ve been missing payments and your mortgage is in arrears (even if you did not file for bankruptcy), the lender is not required to let you continue the mortgage. This means they can foreclose your mortgage and sell your home to recoup their investment.

When this occurs, it does not always mean you’ll lose your home. But you do lose a portion your home’s equity. For example, if you have home equity worth $15,000, you can ask your trustee to pay the $15,000 toward your bankruptcy estate. This amount is distributed to the creditors you owe. And if you do not wish to keep your home, you can let the trustee sell your house to help pay off your debts.

Since you filed for bankruptcy, you likely do not have $15,000 to pay towards your bankruptcy estate. To cover this, you can borrow money from your relatives, or arrange to pay the amount to your trustee in monthly installments. On the downside, this will increase your monthly mortgage payments, but it’s a viable option if you have nowhere to turn to for large funds.

However, if you cannot afford to cover the required amount, your best move is to file a consumer proposal. This is also a good option before deciding to file for bankruptcy. With a consumer proposal, you can offer your creditors a larger sum than your home equity, but it’s paid off in a longer period of 5 years.

For instance, if you have $15,000 in home equity, you can offer a consumer proposal worth $17,000. This means you’ll pay $284 per month for 60 months. This is a more affordable and manageable deal than coming up with $15,000 at once or paying installments in a shorter time. The creditors might accept it since it’s slightly higher than the required amount. And if your finances recover sooner, you can pay it off in less than 5 years.

In conclusion, it’s possible to keep your home during bankruptcy or financial hardship. It just takes careful financial planning and communication with your creditors to manage your debts. It’s also worth consulting a bankruptcy trustee to know the best way to manage your finances.

In Summary

The Canadian housing market has many similarities with the US. They follow pre-qualifying and pre-approval processes and refer to credit scores for mortgage qualifications. But Canadian mortgages also vary greatly, especially when it comes to how mortgage payments are structured and calculated.

Mortgages in Canada are commonly paid within a 25-year term. It’s structured with an initial 5-year fixed-rate period, after which the mortgage is subject for renewal. The lender sends a notice of a new rate and term which the borrower can agree to or negotiate. In contrast, most mortgages in the US are 30-year fixed-rate loans. These have locked rates that are guaranteed to have the same payments for the entire term. Interest rates for Canadian mortgages are also calculated semi-annually, while mortgage interest in the US is calculated monthly.

Next, like in the US, Canadian lenders also review debt ratios before approving a mortgage. They check the gross debt service ratio (GDSR), which is the required income to pay for mortgage payments and housing expenses. Meanwhile, total debt service ratio (TDSR) is income required to pay for mortgage-related expenses together with other debt obligations. The CMHC strictly requires debt ratios of 35% (GDSR) and 42% (TDSR). In the US, the front-end DTI limit for conventional loans is 28%, while the back-end DTI limit is up to 43%.

When it comes to insurance, homebuyers are required to pay mortgage default insurance (MDI) if they paid less than 20% down on their home. This compensates the lender in case the borrower defaults on their mortgage. MDI premiums are carried on for the entire payment term. On the other hand, US homebuyers are required to pay private mortgage insurance (PMI) on a conventional loan if their down payment is less than 20%. However, PMI is cancelled once the mortgage balance reaches 78%.

Canada has an open-door policy for foreigners, allowing non-residents the same homeownership rights as locals. For this reason, it welcomes thousands of immigrants every year to the country. In 2017, the government imposed a 15% land tax for non-permanent citizens who bought property in certain regions of the Toronto area.

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