A mortgage amortization schedule shows exactly how each payment is divided between principal and interest, and how the outstanding balance decreases over the life of the loan. In Canada, federally regulated lenders must use semi-annual compounding for fixed-rate mortgages, regardless of how often payments are made. The calculator above generates a year-by-year schedule showing interest paid, principal repaid, and balance remaining for each year of the amortization period.
How much interest does a typical Canadian mortgage cost over 25 years?
A $500,000 mortgage at 5.00% over 25 years with Canadian semi-annual compounding costs approximately $389,000 in total interest, meaning the total paid is approximately $889,000 on a $500,000 loan. The effective monthly rate is slightly above 5%/12 because of the semi-annual compounding formula. In early years, the majority of each payment is interest; by the final years, almost all of each payment is principal.
How Canadian mortgage amortization works
The semi-annual compounding requirement
The Interest Act, R.S.C. 1985, c. I-15, section 6, requires that mortgages on property in Canada that specify an annual or semi-annual rate must compute interest not more frequently than semi-annually. In practice, this means all fixed-rate mortgages from federally regulated lenders (banks, trust companies) use semi-annual compounding even when monthly payments are made. The effective monthly rate is derived from the semi-annual rate using the formula: r_monthly = (1 + annual_rate/2)^(1/6) – 1.
Why the effective monthly rate is higher than rate/12
A quoted 5.00% mortgage rate with semi-annual compounding has an effective monthly rate of (1 + 0.05/2)^(1/6) – 1 = 0.41239%. This is very slightly higher than 5%/12 = 0.41667%. On a $500,000 mortgage, the difference is small month-to-month but adds up over 25 years. Using the simple rate/12 formula for Canadian mortgages understates interest charges slightly.
Payment calculation
The monthly payment P is calculated using the standard annuity formula: P = principal × r_monthly / (1 – (1 + r_monthly)^(-n)), where n is the total number of monthly payments (amortization years × 12). For a $500,000 loan at 5.00% (semi-annual compounding) over 25 years, the effective monthly rate is 0.41239% and the monthly payment is approximately $2,908.
The front-loading of interest
In the first year of a $500,000 mortgage at 5.00%, approximately $24,700 of the $34,900 in total annual payments is interest, with only about $10,200 going to principal. By the 20th year, the split reverses: approximately $12,100 is interest and $22,800 is principal. This front-loading is why selling or refinancing early in the amortization period recovers relatively little of the original purchase price through principal reduction.
Verified against source
Semi-annual compounding requirement for mortgages: Interest Act, R.S.C. 1985, c. I-15, section 6. Amortization formula: standard actuarial annuity formula consistent with OSFI mortgage underwriting guidelines. CRA guidance on mortgage interest for rental properties: T4036 Rental Income guide. CMHC maximum amortization periods: OSFI Guideline B-20 (residential mortgage underwriting).
Year-by-year: $500,000 at 5.00%, 25-year amortization
| Year | Interest paid | Principal paid | Balance remaining |
|---|---|---|---|
| 1 | $24,689 | $10,208 | $489,792 |
| 5 | $23,484 | $11,413 | $443,261 |
| 10 | $21,565 | $13,332 | $384,673 |
| 15 | $18,869 | $16,028 | $312,177 |
| 20 | $15,135 | $19,762 | $220,480 |
| 25 | $2,872 | $32,025 | $0 |
Worked example: $400,000 mortgage at 4.79% over 20 years
A borrower takes a $400,000 mortgage at 4.79% over 20 years. Effective monthly rate: (1 + 0.0479/2)^(1/6) – 1 = 0.39481%. Monthly payment: $400,000 × 0.39481% / (1 – (1.0039481)^(-240)) = approximately $2,571. Total payments: $2,571 × 240 = $617,040. Total interest: $617,040 minus $400,000 = $217,040.
After 5 years, the outstanding balance is approximately $344,000. Only $56,000 of principal has been repaid despite 5 years of payments totalling $154,260. Of those payments, $98,260 was interest. Renewing at the end of a 5-year term, the borrower still owes $344,000 on the original $400,000 purchase.
Rules and edge cases
Amortization versus mortgage term
Amortization is the total repayment period, typically 20 to 25 years (up to 30 years for insured mortgages on new builds under 2024 rule changes). The mortgage term is the period for which the rate is locked in, typically 1 to 5 years in Canada. At the end of each term, the remaining balance must be renewed at the then-current rate. A 25-year amortization with a 5-year term means the rate renews approximately 5 times over the amortization period.
Maximum amortization for insured mortgages
Mortgages with less than 20% down payment require CMHC mortgage loan insurance. As of August 2024, OSFI Guideline B-20 permits a maximum 30-year amortization for insured mortgages on newly built homes purchased by first-time home buyers; otherwise the maximum for insured mortgages remains 25 years. Conventional (uninsured) mortgages with 20% or more down can have longer amortizations at the lender’s discretion, though most lenders cap at 30 years.
Prepayment options
Most Canadian mortgage contracts allow prepayment of up to 10% to 20% of the original principal per year without penalty. Prepayments applied to the principal directly reduce the amortization period and total interest. A one-time $10,000 prepayment on a $500,000 mortgage at 5% in year 1 saves approximately $16,000 in interest over the remaining amortization and shortens payoff by approximately 10 months. Prepayments are a powerful tool for reducing total mortgage cost.
Refinancing and break penalties
Refinancing a fixed-rate mortgage before the end of the term typically triggers a prepayment charge. For fixed-rate mortgages, the charge is the greater of three months’ interest or the Interest Rate Differential (IRD), which can be substantial when rates have declined since the mortgage was originated. For variable-rate mortgages, the penalty is typically three months’ interest only. The break penalty must be weighed against the interest savings from refinancing at a lower rate.
Rental property mortgage interest deductibility
Mortgage interest on a property used to earn rental income is deductible in computing rental income under ITA section 20(1)(c). The deductible amount is the interest actually paid during the tax year, as shown in the amortization schedule. Principal repayment is not deductible. For a rental property, the year-by-year interest row from this calculator corresponds directly to the maximum deductible interest for that year, before any other rental expense adjustments.
Frequently asked questions
- What is mortgage amortization?
- Mortgage amortization is the process of paying off a mortgage through regular payments over a defined period. Each payment covers the interest that has accrued since the last payment and reduces the principal balance. Over the full amortization period, the balance reaches zero. In Canada, common amortization periods are 20, 25, or 30 years.
- Why do Canadian mortgages use semi-annual compounding?
- The Interest Act, R.S.C. 1985, c. I-15, section 6, requires that mortgages in Canada that state an annual or semi-annual rate must use semi-annual compounding. This is a legal requirement for federally regulated lenders, not a choice. The effective monthly rate is derived from the semi-annual rate using the formula (1 + annual_rate/2)^(1/6) - 1, which is slightly different from dividing the annual rate by 12.
- What is the difference between amortization period and mortgage term?
- The amortization period is the total length of the repayment schedule, typically 20 to 25 years. The mortgage term is the period for which the interest rate is fixed, typically 1 to 5 years in Canada. At the end of each term, the outstanding balance is renewed at the current rate. A borrower with a 25-year amortization and 5-year terms will renew approximately 5 times before the mortgage is fully paid.
- How much of an early mortgage payment is interest versus principal?
- In the early years of a Canadian mortgage, most of each payment is interest. On a $500,000 mortgage at 5% over 25 years, approximately 71% of the first year's payments go to interest and 29% to principal. By year 20, the split reverses: roughly 43% is interest and 57% is principal. Total interest over the full 25 years is approximately $389,000 on the $500,000 loan.
- What is the maximum amortization on a Canadian mortgage?
- For insured mortgages (less than 20% down), the maximum amortization is 25 years for most properties, extended to 30 years for first-time buyers purchasing newly built homes under 2024 rule changes. For conventional mortgages (20% or more down), lenders may allow amortizations beyond 25 years at their discretion, with most capping at 30 years.
- How do lump-sum prepayments reduce total interest?
- A prepayment applied directly to the principal reduces the outstanding balance on which future interest is calculated. A $10,000 prepayment on a $500,000 mortgage at 5% in year 1 reduces all subsequent interest charges, saving approximately $16,000 in total interest over the remaining amortization and shortening the payoff by roughly 10 months.
- What is a mortgage break penalty?
- A mortgage break penalty is charged when a fixed-rate mortgage is repaid or refinanced before the end of the term. For fixed-rate mortgages, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD). The IRD can be substantial if rates have fallen since the mortgage was originated. Variable-rate mortgages typically carry a penalty of only three months' interest.
- Is mortgage interest tax-deductible in Canada?
- Mortgage interest on a principal residence is not tax-deductible in Canada. This differs from the United States. Mortgage interest on a rental property used to earn income is deductible under ITA section 20(1)(c). Only the interest component (shown in the amortization schedule) is deductible; principal repayments are not.
- How is the monthly payment on a Canadian mortgage calculated?
- The monthly payment uses the standard annuity formula with the Canadian effective monthly rate: r = (1 + annual_rate/2)^(1/6) - 1. Monthly payment = principal multiplied by r divided by (1 minus (1+r) to the power of negative number_of_payments). For a $400,000 mortgage at 4.79% over 25 years, the effective monthly rate is approximately 0.3948% and the monthly payment is approximately $2,183.
- Does paying biweekly instead of monthly reduce total mortgage cost?
- Yes. Biweekly payments result in 26 payments per year rather than 24 (two per month), equivalent to one extra monthly payment per year. This extra payment reduces the principal faster, shortening the amortization by approximately 2.5 to 3.5 years on a 25-year mortgage and saving tens of thousands of dollars in interest. The Canadian Money Help biweekly mortgage calculator shows the exact savings at any rate and balance.