Mortgage amortization: how your payments repay principal and interest (worked examples)

According to the FCAC, the term is how long your mortgage contract is in effect (from a few months to 5 years or more). At the end of each term, you must renew unless you pay off the balance. The amortization period is how long it takes to pay off the mortgage completely; it is an estimate based on your current term's interest rate. If your down payment is less than 20%, the maximum amortization period is 30 years if you are buying your first home or a newly built home, and 25 years in all other cases. With a down payment of 20% or more, your lender sets the maximum.

Example: a $300,000 mortgage at 4% over 25 years, monthly payments. The payment is about $1,578.06. • First payment: about $991.77 of interest and $586.29 of principal. • First year: about $11,772 of interest and $7,165 of principal. • Balance after a 5-year term: about $261,162. • Over 25 years: about $173,418 of interest in total, according to the FCAC. Our calculations use a semi-annually compounded rate and reproduce the amounts published by the FCAC for this example. Your contract states your lender's calculation method, and the rate will likely change at renewal.

According to the FCAC, for a $300,000 mortgage at 4%: • 10 years: $3,033 a month, $63,919 of total interest; • 15 years: $2,214 a month, $98,541 of interest; • 20 years: $1,813 a month, $135,057 of interest; • 25 years: $1,578 a month, $173,418 of interest. Using the same method, 30 years would mean about $1,427 a month and $213,560 of interest. A longer period lowers the payment but, as the FCAC points out, it can add thousands or tens of thousands of dollars to the total cost. To see how much you can borrow, see How much house can you afford on $100K in Quebec? and our mortgage affordability calculator.

The FCAC describes three ways to pay off faster, if your contract allows it: • increase your regular payments (as a general rule, you cannot lower them before the end of the term); • make a lump-sum payment, at the times set out in your contract; • choose accelerated weekly or biweekly payments which, according to the FCAC, amount to one extra monthly payment per year. Our calculations, for the same $300,000 at 4% over 25 years and assuming a constant rate: • $100 more per month: loan paid off in about 22 years and 7 months, with about $154,587 of interest, about $18,831 less; • a $10,000 lump sum after the first year: loan paid off in about 23 years and 9 months, with about $158,183 of interest, about $15,236 less. Mind the limits: according to the FCAC, a closed mortgage limits the extra amount you can repay each year. Beyond your prepayment privileges, a penalty applies, and it can reach thousands of dollars. Check your contract or ask your lender. The disclosure rights described by the FCAC apply to federally regulated financial institutions, such as banks.

An amortization schedule shows, for each payment, the interest share, the principal share and the remaining balance. To produce one, you can use the FCAC mortgage calculator or our mortgage calculator. Pay particular attention to the expected balance at the end of your term: that is the amount you will renew, possibly at a different rate.