Methodology

Semi-annual compounding

Canadian fixed-rate mortgages are normally compounded semi-annually. The Interest Act (R.S.C. 1985, c. I-15, s. 6) requires blended-payment mortgages to state the rate calculated yearly or half-yearly, not in advance; semi-annual compounding is the standard practice, not a legal requirement. That is not the same as dividing the annual rate by 12 (a common U.S.-style shortcut).

We convert a nominal annual contract rate r into an effective monthly rate like this:

Example: at 4.29% nominal, the semi-annual factor is 0.0429 ÷ 2 = 0.02145, and the sixth root of 1.02145 gives roughly 0.354% per month — slightly less than 4.29% ÷ 12.

Payment (annuity) formula

Once we have an effective monthly rate, the fixed payment that fully amortizes the loan is the standard annuity formula:

• M — fixed monthly payment
• P — principal (including any CMHC premium rolled into the mortgage)
• r — effective monthly rate
• n — number of monthly payments (e.g. 300 for 25 years)

Other payment frequencies (bi-weekly, accelerated, etc.) are derived from this monthly payment using standard Canadian conversion rules.

CMHC mortgage insurance

When your down payment is under 20% (loan-to-value above 80%), default insurance is generally required on high-ratio mortgages. The premium is a percentage of the mortgage amount and is typically added to the balance.

Premium tiers we use:

• Insurable only if the purchase price is below $1,500,000 ($1,500,000 or more is not insurable)
• Homes at or above that price need at least 20% down and are not high-ratio insured under these rules
• Insured amortization longer than 25 years (eligible first-time buyers / new builds only, where allowed) adds a +0.20 percentage point surcharge on the premium rate (e.g. 4.00% → 4.20%)

Mortgage stress test

Federally regulated lenders qualify you at a rate higher than your contract rate so you can still afford payments if rates rise. The qualifying rate is:

So if your contract rate is 4.29%, you qualify at max(6.29%, 5.25%) = 6.29%. If contract rates were very low, the 5.25% floor would apply instead. We use this same rule when showing stress-test payments and affordability.

GDS & TDS ratios

Lenders measure housing and total debt loads against gross income:

• GDS (Gross Debt Service) — mortgage payment + property tax + heating + applicable condo fees, divided by gross income. Guideline maximum: 39%
• TDS (Total Debt Service) — GDS housing costs plus other monthly debt payments (car loans, student loans, credit cards, etc.). Guideline maximum: 44%
• Condo / strata fees: we include 50% of monthly fees in housing costs (common underwriting practice)

Affordability tools also show more conservative advisory targets (32/37) so you have breathing room.

When the property tax field is left blank, the calculators estimate Ontario property tax at 0.95% of the purchase price per year. This is a planning assumption, not a published rate. Posted 2026 residential rates run from 0.767% (Toronto) to 1.088% (Mississauga) and 1.48–1.56% (Hamilton, urban), and real bills use the assessed value rather than the price. Enter your own annual amount to override the estimate.

Land transfer tax (marginal brackets)

Provincial (and some municipal) land transfer taxes are calculated with marginal brackets — each portion of the purchase price is taxed at its own rate, not the top rate on the whole amount.

Example for Ontario provincial LTT (simplified): the first $55,000 at 0.5%, the next slice at 1%, and so on up to higher brackets on very expensive homes. First-time buyer rebates (where available) reduce the tax up to a provincial maximum; Toronto has an additional municipal tax and rebate.

Provinces without a provincial land transfer tax are shown as zero provincial LTT in our closing-cost estimates. Municipal fees, legal costs, and other closing items are separate estimates — see the Closing Costs calculator.

Prepayment penalty (IRD) estimate

Breaking a fixed-rate mortgage early usually costs the greater of three months' interest or an Interest Rate Differential (IRD). Variable-rate mortgages often use three months' interest only.

This is a standard industry-style estimate using the rates you enter. Big-bank IRD formulas can differ — some use posted rates, discounted “comparison” rates, or more complex present-value methods. Always get a written payout statement from your lender before breaking a mortgage.

Rent vs. buy — high-level assumptions

The rent-vs-buy tool projects year-by-year net worth for a buyer and a renter under the same cash-flow capacity. High-level ideas:

• Buyer — pays mortgage (semi-annual compounding), property tax, insurance, maintenance, and closing costs up front; builds equity as the home appreciates and the mortgage amortizes; pays selling costs at the end of the horizon
• Renter — pays rent (inflating annually) and invests the would-be down payment plus any cash-flow difference at an assumed portfolio return
• Growth rates (appreciation, rent inflation, investment return) are user inputs — not forecasts. Small changes can flip the winner
• Taxes on investment gains, principal-residence exemptions, and lifestyle differences are simplified or omitted

Use it for intuition, not as a guarantee of which path is “better.”