The mathematics of Canadian mortgages

[freddie.wilkinson]

Can someone please point me to some references explaining how Canadian mortgages are calculated (i.e. how much goes of a payment against the principal and so on)? I remember reading a few years back that the most of the formulas found on the web are for the US and not correct for Canada - I forgot the details but it was something about how compounding is calculated there compared to here.

My practical question is that I'd like to assess the impact of making a lumpsum payment versus other investment choices (the eternal question

Thank you,
Freddie

[brad]

I may be mistaken, but I'm pretty sure the amortization schedules are the same for mortgages no matter where they're located; the only diff between Canadian and US mortgages is that in the US your mortgage interest is tax-deductible. So any simple mortgage calculator, one that shows you the amortization schedule only without any tax benefits, should do the trick.

[MoneyGal]

You can use the calculators at Dinkytown.net. Here's one.

To answer your question: the difference between mortgages in Canada and the U.S. is in how interest is calculated. U.S. mortgages compound monthly. Canadian mortgages compound semi-annually.

[HaroldCrump]

To answer your question: the difference between mortgages in Canada and the U.S. is in how interest is calculated. U.S. mortgages compound monthly. Canadian mortgages compound semi-annually.

So US homeowners end up paying more interest than Canadian?

[MoneyGal]

Yes. The Canadian system has the effect of capping compounding and as a result, Canadian mortgage payments (at the same stated interest rate) are slightly lower than in the U.S.

[Oldroe]

So google Mortgage Cal and pick a Canadian one. Make sure you get your interest and amortization period correct and weekly biweekly.

Most will show principle and interest if you are on your 20th payment go there and deduct your lump sum from the principal so maybe move down 5 payments and the interest on those 5 payments is your immediate savings.

Now notice how your principal and interest changes every payment. So for the remainder of your mortgage your money will be working that much harder for you.

[MoneyGal]

The impact of a pre-payment is both a shorter amortization and saved interest (assuming you keep payments the same). The link I posted earlier will allow you to calculate both. (You can also opt to keep the amortization period the same, and get lower monthly payments.)

[steve_jay33]

http://www.vertex42.com/
I like using this one.
You can change a bunch of factors, and it is Canadian mortgage friendly

[freddie.wilkinson]

Thanks for the replies.

One thing I'm not sure about: is it a valid calculation if I consider the mortgage starting today, with the current balance shown online by my bank (TD)? Or do I have to start the calculation on the date of the last term renewal and the balance at the time, then calculate how many payments I've made since then so I can input a lump sum on payment #143 (I pay weekly). The latter is more inconvenient, partially because I'm on a variable rate and the rate has changed several times because of the recession.

Thanks again!
Freddie

[HaroldCrump]

One thing I'm not sure about: is it a valid calculation if I consider the mortgage starting today, with the current balance shown online by my bank (TD)?

Any mortgage calculator should work correctly in that case, as long as all your inputs are as of today.
So today's principal, remaining term as of today and so on.