Calculate Your Monthly Mortgage Payment for Any Purchase Price

There are several scenarios in which your mortgage payment could change. If you have an open mortgage, for example, you could increase the frequency or amount of your payments. Your mortgage payment could also change if you refinance and secure a longer amortization period, or if you have a variable-rate mortgage and your interest rate increases.

Because it determines the maximum mortgage amount you can qualify for, the mortgage stress test has a significant impact on the size of your mortgage payment. 

The rules of the stress test state that you have to qualify for a mortgage at a rate of either 5.25% or the rate you’ve been offered plus 2%, whichever is higher. If you’re offered a rate of 5%, for example, you have to be able to afford the same mortgage at 7% to be approved.

If you can’t pass the stress test, your lender will reduce the amount of your mortgage until you can. As that amount shrinks, so will your monthly mortgage payment. 

If your mortgage payment has increased to the point where you’re having difficulty making it each month, reach out to your lender or mortgage broker and find out what options are available to you. Lenders are encouraged to work with borrowers in instances like these, so there may be a solution that works for you, like extending your amortization or switching your mortgage from a variable rate to a fixed rate.

A mortgage payment typically includes portions that go toward the principal, the interest and mortgage default insurance. Closing costs like commissions, land transfer taxes and legal fees will need to be paid separately.

There are several programs for first-time home buyers in Canada that can help increase their down payment savings, like the Home Buyers’ Plan and the First Home Savings Account. By making a larger down payment and borrowing less, your monthly payment should also decrease.

The amount of your monthly payment on a $500,000 mortgage depends on the interest rate you’re offered and the amortization period you choose. At 5% and a 25-year amortization, your monthly payment would be $2,989. At 4% and 25 years, it would be $2,704. A 5% rate and a 20-year amortization would result in a monthly payment of $3,378.

Estimating mortgage payments based on a home’s price is difficult without knowing more about your finances.

If you make a significant down payment, for example, you’ll reduce your monthly mortgage costs. If your credit score is low, you might have to get a mortgage from a B lender that charges you a high interest rate, which will lead to higher monthly payments. 

Let’s say you have pristine credit, a $50,000 down payment and are offered a mortgage interest rate of 5%. A $300,000 house would cost you $1,495 a month.

But if your credit score is low, you only have the minimum down payment of $15,000, and the best rate you’re offered is 6.25%, your monthly payment would be $1,941.

To illustrate how to calculate a mortgage payment on your own, we’ll use an example mortgage for a home worth $700,000. We’ll assume a down payment of 20% ($140,000), a 5% interest rate and a 25-year amortization period. We’ll also use a monthly payment frequency.

1. Principal

The first thing to do is establish the principal. This can be done by subtracting your down payment from the home’s sale price.

• $700,000 – $140,000 = $560,000

2. Total payments

You’ll also need to know the total number of mortgage payments you’ll be making. Calculate this number by multiplying the total years of your amortization by 12, the number of months in each year. 

• 25 x 12 = 300

3. Monthly interest rate

Here’s where things get a little more complicated. Interest is an annual calculation, so you have to break down your interest rate to find out how much interest you’ll pay each month. Our formula does this in two steps.

First, you need to find out your effective annual interest rate (EAR). You do this using your actual rate (R) and the number of times interest compounds per year (C). 

• EAR = ((1 + (R/C)) ^ C) – 1
• ((1 + (.05/2)) ^ 2) – 1 = 0.05062

Then you have to determine your monthly interest rate (R). You’ll need to plug your number of payments per year (N) into this one. 

• R = (((1 + EAR) ^ (1/N)) -1)
• (((1+ 0.05062) ^ (1/12))-1 = .00412

4. Final calculation

You have all the numbers you need. It’s time to plug them into the formula for determining your monthly mortgage payment (P).

• P = Principal x monthly interest rate/ 1 – (1 + monthly interest rate) ^ (-total number of payments)
• 560,000 x 0.00412 / 1 – (1 + 0.00412) ^ (-300)
• Monthly payment = $3,257

1. In the “Property Value” field, enter the price of the home you intend to buy or use the slide tool to indicate a price.
2. In the “Down Payment” field, enter the amount of your down payment. You can use a dollar figure or a percentage of the home’s listing price.
3. In the “Interest Rate” field, enter a potential mortgage interest rate. If you’re unsure of what value to enter, check Canada’s current mortgage rates to get an idea of a reasonable number.
4. In the “Mortgage Term” field, choose how long you’d like to go before needing to renew your mortgage.
5. In the “Rate Type” field, indicate whether your future mortgage will have a fixed or variable interest rate.
6. In the “Amortization” field, choose the total length of your mortgage loan.
7. In the “Payment Frequency” field, indicate how often you’ll make a mortgage payment.

A mortgage calculator can teach you a lot about the variables that affect the cost of a home loan. Our mortgage payment calculator can help you:

• Understand how different mortgage interest rates can affect the cost of your mortgage.
• See the impact the size of your down payment has on your monthly payments and the overall cost of your mortgage.
• Select an amortization period that aligns with your homeownership goals.
• Find a payment frequency that fits your budget.
• Decide on a term length for mortgage scenarios that work for you.
• Estimate your mortgage budget before you start reaching out to lenders.

The payment breakdown displayed by a mortgage payment calculator gives you more insight into your amortization schedule. You’ll be able to see how much interest and how much of the principal each payment takes care of, not just for your current mortgage term, but for every year of your amortization period. 

An amortization schedule explains how your mortgage payment evolves over the life of your home loan.

If you make no changes to your mortgage during the amortization period, your principal and interest amount will remain constant. But as you pay down your mortgage, the composition of those payments slowly reverses. 

At the outset of your mortgage, most of your payment goes toward interest. But by the time you reach the last year of your loan, most of it will be going toward the principal.