How much interest will I really pay on my mortgage in Canada?
Your renewal letter shows a payment. It rarely shows the number that matters most: how much of the next five years of payments is interest. Here is how Canadian mortgage interest is calculated, a calculator that shows interest per term and over the whole amortization, and the three levers that change the total: the rate, the amortization and prepayments.
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Mortgage interest calculator (Canadian compounding)
Interest this term, balance at renewal, lifetime interest
| Rate | Monthly payment | Interest this term | Lifetime interest |
|---|
Uses half-yearly (semi-annual) compounding, the way Canadian fixed-rate mortgages usually state interest, converted to an equivalent rate per payment. Lifetime interest assumes the same rate for the whole amortization, which will not happen; treat it as a yardstick. Extra per month is added to every payment and assumed to fit inside your prepayment privileges. Your mortgage statement and contract have the real numbers.
How Canadian mortgage interest is calculated
Three facts explain almost every mortgage number you will see in Canada.
- The rate is stated yearly or half-yearly. Section 6 of the federal Interest Act says a blended-payment mortgage must contain a statement of the principal and the rate of interest "calculated yearly or half-yearly, not in advance." Fixed-rate mortgages in Canada are typically quoted compounded half-yearly. A 4.5% rate compounded half-yearly works out to about 0.3715% a month, slightly less than 4.5% divided by 12 (0.375%).
- Payments are blended. Every payment is the same size, but the split changes. Interest is charged on what you still owe, so early payments are mostly interest and later ones are mostly principal.
- The term and the amortization are different clocks. The amortization is how long it would take to pay off the whole loan at the current payment (often 25 years, up to 30 for eligible buyers). The term is how long your current rate and conditions last, commonly 1 to 5 years. At the end of each term you renew, and the interest from then on depends on the new rate.
Our calculator follows the same method as the Financial Consumer Agency of Canada (FCAC) Mortgage Calculator. FCAC's own sample, a $100,000 mortgage at 5% over 25 years with a 5-year term, shows $23,403.80 of interest in the term and $74,481.50 over the amortization. Run those numbers above and you get the same answer, to the cent of rounding.
Worked example: $500,000 at 4.5% over 25 years
Take a $500,000 mortgage at 4.5%, compounded half-yearly, 25-year amortization, monthly payments, 5-year term.
- Monthly rate: (1 + 0.045 / 2)1/6 minus 1 = 0.3715%.
- Payment: $500,000 x 0.003715 / (1 minus 1.003715-300) = $2,767.36 a month.
- First payment split: interest is $500,000 x 0.3715% = $1,857.66; only $909.70 goes to principal.
- First 5 years: 60 payments total $166,041.89. Of that, $105,023.82 is interest and $61,018.06 is principal, so you renew owing $438,981.94.
- Full 25 years at the same rate: interest totals $330,209.43, on top of the $500,000 you borrowed.
The striking number is step 4: about 63 cents of every dollar you pay in the first five years is interest. That is normal for a 25-year blended mortgage, and it is why prepayments and the rate at renewal matter so much.
Term interest vs lifetime interest
Lifetime interest is the headline number people quote, but nobody pays it as calculated, because the rate resets at every renewal. Term interest is the number you can actually plan around: it is locked once your rate is set, and it is roughly what you would have to beat if you are comparing a renewal offer, a switch or a prepayment. The calculator shows both. Use the term figure for decisions in the next five years and the lifetime figure as a yardstick for how much a change in rate or amortization is worth.
| $500,000, 25 years, monthly | Payment | Interest in first 5 years | Interest over 25 years |
|---|---|---|---|
| 4.0% | $2,630.10 | $93,076 | $289,030 |
| 4.5% | $2,767.36 | $105,024 | $330,209 |
| 5.0% | $2,908.02 | $117,019 | $372,407 |
On this balance, every half a percentage point is worth about $12,000 of interest per 5-year term and about $41,000 to $42,000 over the full amortization, if it lasted the whole way. These rates are illustrations, not quotes.
What changes the total
1. The rate
The table above shows it. A lower rate at renewal cuts both the payment and the share of each payment that is interest. FCAC suggests shopping around a few months before your term ends, without waiting for the renewal letter, and telling your lender about other offers; our mortgage renewal guide walks through the 21-day renewal statement and the timeline.
2. The amortization
Stretching the same $500,000 at 4.5% to 30 years drops the payment to $2,521.08, about $246 a month less, but lifetime interest rises to about $407,588, roughly $77,379 more than 25 years. FCAC puts it plainly: think twice before extending your amortization to lower your payments, because the extra interest can add up to thousands or tens of thousands of dollars. Who can get 30 years and what it costs is in our 30-year amortization guide.
3. Prepayments
Adding $200 a month to the $2,767.36 payment clears the mortgage in about 22 years and 2 months and cuts lifetime interest to about $287,029, a saving of about $43,181 at a constant rate. Switching to accelerated biweekly (half the monthly payment every two weeks) clears it in about 21.7 years and saves about $50,078. Both depend on your contract's prepayment privileges; see how prepayment privileges work and biweekly vs monthly payments.
Options people compare
| Option | What it does to interest | Trade-off |
|---|---|---|
| Shop the rate at renewal | Lowers interest for the whole next term | Time to compare; a switch may involve fees or qualifying |
| Keep the shortest amortization you can afford | Lowest lifetime interest | Higher payment each month |
| Regular extra payment | Every dollar reduces principal right away | Must fit inside your prepayment privilege |
| Accelerated biweekly or weekly | One extra monthly payment a year, automatically | Cash flow every two weeks |
| Lump sum once a year | Reduces principal and all future interest on it | Annual limit; money is no longer liquid |
These are options, not recommendations. Whether extra money should go to the mortgage or somewhere else depends on your rate, your emergency savings and your other debts, and that is a conversation for a licensed advisor. Looni does not recommend investments.
Where to find your own numbers
- Annual mortgage statement: outstanding balance, interest paid in the year and principal paid.
- Renewal statement: a federally regulated lender must send it at least 21 days before the term ends; it shows the balance at renewal, the rate, the payment frequency, the term and any fees.
- Your contract: the rate, how it is compounded, the amortization and your prepayment privileges.
- Online banking: most lenders show the current balance and remaining amortization.
Put the balance, rate and remaining amortization into the calculator above and set the term to the years left on your current term. If the remaining amortization on your statement is longer than you expected, that can happen with some variable-rate mortgages when rates rise; ask your lender to explain it.
Questions people ask
How much interest will I pay on a $500,000 mortgage in Canada?
At 4.5% compounded half-yearly with a 25-year amortization, the payment is $2,767.36 a month. You pay about $105,024 of interest in the first 5 years and about $330,209 over 25 years if the rate never changes. At 4% the 25-year total is about $289,030; at 5% it is about $372,407.
How is mortgage interest calculated in Canada?
For blended-payment mortgages, the Interest Act requires the rate to be stated calculated yearly or half-yearly, not in advance. Fixed-rate mortgages are typically compounded half-yearly. The half-yearly rate is converted to an equivalent rate per payment, and each payment covers the interest on the balance first, with the rest reducing principal.
Why is most of my mortgage payment interest?
Interest is charged on what you still owe. Early in the amortization the balance is at its highest, so the interest portion is largest. On $500,000 at 4.5%, the first payment is $1,857.66 interest and $909.70 principal.
Does a 30-year amortization cost more interest?
Yes. On $500,000 at 4.5%, 30 years lowers the payment to $2,521.08 but raises lifetime interest to about $407,588, roughly $77,379 more than 25 years at the same rate.
How much does paying $200 extra a month save?
On $500,000 at 4.5% over 25 years, an extra $200 a month clears the mortgage in about 22 years and 2 months and saves about $43,181 of interest at a constant rate, if your prepayment privileges allow it.
Is the lifetime interest number real?
It is a yardstick. It assumes the same rate for the whole amortization, but your rate resets at every renewal. The interest for your current term is the number you can plan around.
Is a Canadian mortgage calculator different from a US one?
Usually yes. US calculators typically divide the annual rate by 12. Canadian fixed-rate mortgages compound half-yearly, which gives a slightly lower effective monthly rate, so the payment and interest come out a little lower for the same quoted rate.
Looni is being built to read your mortgage statement and show what this term is costing you in interest, what you will owe at renewal and when the renewal clock starts. Read-only, no advice.
Sources
Department of Justice, Interest Act, sections 6 and 7 (rate stated yearly or half-yearly, not in advance, on blended-payment mortgages). Financial Consumer Agency of Canada, Mortgage Calculator summary (sample $100,000 at 5%, 25 years, 5-year term: $23,403.80 term interest, $74,481.50 over the amortization; extended amortizations cost more over time), Paying off your mortgage faster (prepayments, payment frequency) and Renewing your mortgage. All worked figures computed with half-yearly compounding and checked in Python.