Amortization Calculator

Whether you are taking out a mortgage or just about any other type of loan, you need to understand the concept of amortization. Read on to learn more about what amortization is, how to understand an amortization schedule and how to use our amortization calculator. 

What is amortization?

The most widely used meaning of amortization is to regularly repay a loan over time. An example of amortization that we commonly see is a mortgage - the homeowner takes out a mortgage loan and makes monthly payments to the lender. Part of the payment goes towards the interest on the loan (and things like mortgage default insurance and property taxes), while the rest goes towards the principal balance. When the principal has been repaid in full, the loan has been paid off. Other examples of amortized loans include car loans and personal loans, such as instalment loans. The total amount of time that you have to pay off the principal of a loan is called the amortization period.

How long does your amortization period have to be? 

If you are putting less than 20% down payment on your home, your mortgage loan is considered a high-ratio mortgage and will require mortgage default insurance (typically referred to as CMHC insurance). This protects your lender in the event that you are unable to pay your mortgage and default on the loan. The maximum amortization period for a high-ratio mortgage is 25 years. 

If you are able to make a down payment of 20% or more on your home, you have a conventional mortgage and do not require mortgage default insurance. In this case, you can have an amortization period of up to 35 years. 

However, as of August 1, 2024, 30-year amortizations will become available for some eligible high-ratio mortgage borrowers, as long as they are also first-time home buyers, and are purchasing a newly-constructed home. The measure was introduced as part of the 2024 Federal Budget, as part of efforts to improve affordability for the first-time home buyer segment.

Those who wish to extend their amortization to 30 years will pay for it via their default insurance premiums, at a surcharge of 20 basis points. The option to extend the amortization will be made available from all three of Canada’s mortgage default insurers (Canada Mortgage and Housing Corporation, Sagen, and Canada Guaranty), and all Canadian lenders.

source: Canada Mortgage and Housing Corporation (CMHC)

Also read: How much will 30-year amortizations cost for insured borrowers?

Is a longer or shorter amortization period better?

In general, a longer amortization period means that you’ll have smaller regular payments, but you’ll pay more in interest over time, while with a shorter amortization period, the opposite is true. You can find more information about mortgage amortization along with some examples of total interest paid over short and long amortization periods elsewhere on our website. Check out the helpful video below to see how amortization periods affect your mortgage payments, then read on to learn more about amortization. 

Also read: Should you extend your amortization period at renewal time?

What is an amortization schedule?

An amortization schedule is a table that lists out your regularly scheduled payments on a loan. The schedule shows the date and total amount of the payment, and also breaks down how much of that payment is going towards the principal versus how much is going towards the interest (and any other costs and fees). Along with this information, the amortization schedule shows you how much you have left to repay after each regular payment. 

How do you calculate amortization? 

To calculate the amortization on a loan, you would apply the following formula:

principal payment = monthly payment - (loan balance x interest rate/12 months)

In general, your lender will specify your monthly payment at the time that you take out a loan, making this calculation quite straightforward. 

If you haven’t yet taken out a loan and want to estimate your monthly payment for planning purposes or to compare two different products, you would want to calculate your monthly payment as well. In order to do this, you would need to use the formula below, where i = monthly interest rate and n = number of payments:

To obtain your monthly payment, you’ll need to divide your monthly interest rate (i) by 12. So, let’s say that your annual interest rate is 4%. Your monthly interest rate will then be 0.33% (4% annual interest rate ÷ 12 months).

You’ll also need to multiply the number of years in your loan term by 12. So, for example, a 25-year mortgage would have 300 payments (25 years x 12 months).

How do you use Ratehub.ca’s amortization calculator?

Our amortization calculator makes it easy for you to simulate different loan scenarios to see how much your regularly scheduled payments will be, and how much of them will go towards the principal versus interest. You just need to input a few pieces of information into the loan home amortization calculator, and it will estimate an amortization schedule for you. 

As you fill in the fields, you’ll notice that if your mouse hovers over a term for a few seconds, you’ll get a helper tip that gives you more information about that term. For example, if your mouse hovers over the term “loan type”, you will be provided with more information about both mortgages and general loans. 

You’ll see two different options right away: “mortgage” and “loan”. 

Mortgage

To get started with this option, you’ll need to input the following information:

• Home price: Enter the price of the home you want to buy. 
• Down payment: Enter the amount of money that you think you’ll be able to pay up front. 
• Interest rate: Enter the interest rate. You can see the best mortgage rates on the market here, for example, to estimate the interest rate for a mortgage. 
• Amortization period: Enter the length of time that you think you’ll need to repay the mortgage loan. Keep in mind that the maximum amortization period for an insured mortgage (where your down payment was less than 5% of the purchase price) is 25 years, and the maximum amortization period for uninsured mortgages in Canada is 35 years. 

Loan

To proceed with this more general option, you need to enter the following information:

• Loan amount: Enter the total amount of the loan you wish to take out. This is entirely dependent on what your needs are.
• Interest rate: Enter the interest rate on the loan. 
• Loan period: Enter the period of time that you think it will take you to repay the loan. 

It’s important to remember that, for both options, this calculator is just providing you with an estimate based on the information that you have provided. 

How to read your results

Once you’ve entered all of your information, our amortization calculator will generate an amortization schedule for you. You’ll see a dark blue line going from the top left-hand corner to the bottom right-hand corner - this is the balance remaining on your loan. It starts off at what the amount of your balance is today, and finishes when the amount is $0. 

The light blue portion of the amortization schedule (bar chart) indicates the amount of interest your payment is going to versus the principal. You’ll see that over the course of the amortization period, the amount you pay in interest versus principal steadily decreases. 

The green portion of the amortization schedule (bar chart) indicates the amount of the principal on your loan that your payments are going to. As your amortization period progresses, the portion of the principal that your payments go to versus the interest will increase. 

You’ll notice that over the course of the amortization period, a larger portion of your regular payments will go towards the principal, and a smaller portion will go towards the interest. The total size of your loan will also go down. The last payment in your amortization schedule will leave you with a balance of $0, meaning that you have paid off your loan.

In addition to the amortization schedule, the calculator will also display a table that breaks down the following, showing it year by year: 

• The total amount you have paid towards the loan;
• How much you have paid towards the principal;
• How much you have paid towards interest; and
• The remaining balance on the loan
  

More mortgage calculators

• Mortgage Affordability Calculator
• Land Transfer Tax Calculator
• Mortgage Default (CMHC) Insurance Calculator
• Mortgage Refinance Calculator
• Mortgage Penalty Calculator
• Amortization Calculator