Canadian Mortgage Calculator
This calculator can help prospective Canadian homebuyers compute the amount of the monthly payment on a mortgage. First enter the amount of money you wish to borrow, an expected interest rate, and the amortization term in years.
Press CALCULATE and you’ll see what you’re monthly payment will be. To create an amortization schedule, input a date for a first payment and click on “Create Amortization Schedule.” A new browser window will open with a detailed, month-by-month schedule.
Know the Difference: Canadian Mortgages vs US Mortgages
Post-recession, Canada has been touted as a miracle of financial security. Not a single bank has failed in recent years, amid worldwide economic stress. The reason for its stability remains debatable, but one fact is sure. Our neighbors up north bank a little differently than we do, especially in regard to mortgages. Air-tight regulations and closely supervised mortgage terms are the number one difference between the Canadian system and its more happy-go-lucky U.S. counterpart, as reported by the Los Angeles Times. Here are a few key policy differences.
Five-year Fixed Rates versus Thirty-year Fixed
Canadian banks require fixed interest rates on mortgages, usually with a five-year maximum. After the five years are up, the rates are renegotiated for another five years. This policy can be creditor-friendly. If interest rates are high at the beginning of the five years, the borrower is stuck with that fixed rate for five years. Banks are saved from the danger of an overwhelming number of mortgages at low-interest rates spanning out for twenty or thirty years until they are barely lucrative.
Conversely, in the U.S. mortgage rates can be substantially more borrower-friendly. Thanks to a stated national policy encouraging and even subsidizing home ownership, many banks provide the 30-year fixed mortgage that has become such a staple for U.S. homeowners. If you decide to decline the security of a 30-year fixed, though, the second most common option is an adjustable rate (ARM) or variable rate mortgage.
ARMs usually offer a lower initial interest rate on the mortgage but fluctuate with the economy. When interest rates rise, so do your loan payments. Over the long term, the interest rate for ARM's will inevitably rise, which may expose borrowers to mortgage payments higher than they expected or can afford.
Tax Deductibility
In the States, as long as there's been an income tax, there has also been a mortgage interest tax deductions. Americans can deduct the amount of their mortgage interest from their total tax payment. American homeowners would likely balk at possibility of paying taxes to the limit while also dishing out cash for steep interest payments. On the other hand, these oh-so-friendly interest deductions can encourage over-borrowing and incentivize potential homeowners to purchase a home out of their price range. The foreclosure epidemic of 2008 likely partially resulted from this.
In Canada, mortgage interest payments are not even a little bit tax deductible. There are no tax incentives for potential homeowners to buy instead of renting. There is, however, incentive to pay down the mortgage because it's a tax-free investment, leading to a greater equity accumulation than is seen in the U.S.
Interest Compounding
If you're a recent immigrant expecting mortgage payments to be calculated in the same way across the border, take care. Once again, Canada carries regulations for compounding interest, which can only be compounded twice annually, while all payments must be in arrears. Any Canadian mortgage calculator will take this into account. On the other hand, in the U.S., there is no ruling about the compounding of interest on mortgages.
Full Recourse
In Canada, most mortgages are full recourse In the case of foreclosure on a home with negative equity, the bank can file a deficiency judgment against the borrower. The deficiency judgment would allow the bank to take the borrower's other assets and even, in some cases, the borrower's future wages.
Pre-payment Penalties
When Americans talk about the land of the free, they don't usually connote freedom to pay back loans in that bracket. Perhaps they should, as U.S. banks usually carry minimum or no penalties for exceeding mortgage payments. In Canada, however, banks can charge a pretty penny for anyone hoping to throw off the debt burden sooner than the given amortization period.
In other words, a Canadian borrower is committing not just to the principal of a mortgage, but also to a given interest amount if they want to avoid a penalty that usually amounts to about three months' interest payment. Although this may seem frightening at first glance, it's a form of protection for Canadian banks and discourages such reckless refinancing as what contributed to the 2008 housing crisis.
Why are the two countries' policies so different? As the Canadian Mortgage and Housing Corporation explains, Canada doesn't ultimately aim to increase the rate of home ownership, resulting in more regulations than the U.S. Interestingly, despite vastly different mortgage policies, both countries hover around the same percentage of home ownership, which in 2010 was about 67 percent in the U.S. and 69 percent in Canada.
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