Almost every mortgage explainer online is written for the United States, and three of the things it says are wrong here. Canadian fixed rate mortgages compound semi-annually, nobody is offered a rate for the life of the loan, and the word accelerated on a payment schedule means something specific.
Compounding Twice a Year Is the Law, Not a Convention
Section 6 of the Interest Act requires that where a mortgage is repayable by blended payments of principal and interest, the rate be stated on a basis no more frequent than half yearly. So Canadian fixed rate mortgages compound twice a year. American ones compound monthly.
Compounding less often makes the same posted rate slightly cheaper in effect, which means the Canadian payment on the same rate, balance and amortization is a little smaller than the American one. On a single payment the difference is a few dollars. Over twenty five years of a large balance it is not, and more to the point, a calculator using the wrong convention is wrong on every figure it prints, including the total interest, which is the number people are usually trying to find out.
Two exceptions worth knowing. Variable rate mortgages in Canada generally compound monthly, because the rate moves anyway. And the rule is about how the rate is stated for a blended payment mortgage; other kinds of lending here are not covered by it, which is why a line of credit or a car loan quotes differently.
The Term Is Not the Amortization
This is the distinction that surprises people who learned about mortgages from American sources, where a thirty year fixed really does mean the rate is fixed for thirty years.
- The amortization is how long the debt takes to clear if you keep paying at this rate. Twenty five years is the common figure, thirty where the mortgage is uninsured.
- The term is how long the contract you signed actually runs. Five years is the common figure, and one, two, three, four, seven and ten year terms all exist.
At the end of the term the balance that is left has to be renewed at whatever rates exist on that day. A twenty five year amortization on a five year term means renewing four times before the mortgage is gone. So every payment figure quoted past the end of the term assumes a rate nobody has agreed to yet, and the honest way to read a twenty five year total interest number is as one scenario rather than as a price.
This is why the renewal is the moment that matters in a Canadian mortgage, and it is the moment most people do the least work on. A renewal offer arriving in the post is the lender opening a negotiation, not the lender telling you the rate.
Accelerated Payments Are Not a Trick, They Are More Money
Payment frequency options usually run monthly, semi-monthly, bi-weekly, accelerated bi-weekly and weekly. Only one word in that list changes the arithmetic.
| Frequency | How the payment is worked out | Paid per year |
|---|---|---|
| Monthly | The full payment, twelve times | 12 monthly payments |
| Semi-monthly | Half the monthly payment, twice a month | 12 monthly payments |
| Bi-weekly | The annual total divided by 26 | 12 monthly payments |
| Accelerated bi-weekly | Half the monthly payment, every two weeks | 13 monthly payments |
| Accelerated weekly | A quarter of the monthly payment, every week | 13 monthly payments |
There are twenty six two week periods in a year, so paying half the monthly amount every two weeks pays the equivalent of thirteen monthly payments rather than twelve. The extra one goes entirely against principal, and because it lands early it stops accruing interest for the rest of the amortization. That is where the years come off. It is not a clever structure, it is simply paying about 8% more a year in a way that does not feel like it.
The corollary is worth stating, because it is where people get misled. A plain bi-weekly payment is the annual total divided by twenty six, so it is the same money in a different rhythm and it saves essentially nothing. If a schedule does not say accelerated, it is not.
The Rules That Decide the Shape of the Mortgage
Three federal rules set the outer limits on what you can borrow and for how long, and they change what a payment looks like more than the rate does.
The Minimum Down Payment Is Tiered
- 5% on the portion of the price up to $500,000
- 10% on the portion between $500,000 and $1,500,000
- 20% minimum on any purchase price above $1,500,000
So a $700,000 home needs $25,000 on the first $500,000 and $20,000 on the next $200,000, which is $45,000 rather than the $35,000 a flat 5% would suggest.
Under 20% Down Means the Mortgage Is Insured
Below 20% the mortgage must carry default insurance, and the premium runs from 2.80% to 4.00% of the mortgage depending on the loan to value, or 4.50% where the down payment came from a non-traditional source. The premium is normally added to the mortgage rather than paid at closing, so it quietly raises the balance every payment is calculated on.
The insurance also caps the amortization at twenty five years, with one exception: since 15 December 2024 an insured buyer can take thirty years if they are a first time buyer or the home is newly built. Doing so adds a surcharge of 0.20% to the premium.
The Stress Test Sets the Size, Not the Payment
Under OSFI Guideline B-20 a borrower has to qualify at the greater of the contract rate plus two percentage points or 5.25%. That is a test of how much a lender will lend, not a rate anybody pays. It is the reason an approval comes in lower than the payment you could obviously afford, and since late 2024 it does not apply to a straight switch to a new lender at renewal where the amount and the amortization do not rise.
What to Actually Compare
- The rate, but as a pair with the term. A lower rate on a shorter term is a different product from a higher rate on a longer one, and which wins depends on rates you cannot see yet.
- The prepayment privileges, which are set in your contract and vary between lenders. These are usually a percentage of the original principal each year plus an option to raise the regular payment.
- The penalty for breaking early, which is where the real difference between lenders usually is. Most people do not keep a five year term for five years.
- Whether the mortgage is portable and assumable, which matters if you might move.
The mortgage payment calculator works all of this on the Canadian convention, and the affordability calculator applies the stress test and the debt service limits to show what a lender would actually approve. If you have not counted the cash needed on closing day, that is a separate and larger surprise, and it is covered in what closing actually costs.
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