Mortgage Payment Calculator
Understanding how much your mortgage payment will be is critical so that you can make informed financial decisions, predict long-term costs, compare loan options effectively, and identify the best strategies to save money over the life of the loan. Getting a mortgage is the most important part of real estate investing.
Mortgage Qualification
To qualify for a mortgage, you are required to have a down-payment:
Owner-Occupied (i.e. you are living in the property): You can put down as little as 5% for a purchase price below $500,000, but then you have to get CHMC insurance.
Rental Property: you must put down at least 20% to qualify for a mortgage > there is no way around this in Canada. Any deposits provided to the developer count towards this requirement (for example if you put down a 5% deposit with the developer, you will be required to come up with another 15% deposit at closing). You are not able to get CHMC insurance on an investment property.
The average person can qualify for up to 5 mortgages with traditional lenders (assuming you have enough income to satisfy the required debt-service ratios. Getting mortgage #6, 7, 8, etc. are possible, you just need to ensure you are working with a top mortgage broker and have planned accordingly - contact me if you would like a referral to who I use.
Mortgage Payments
Mortgage payments are calculated using a formula that considers the loan amount (principal), the interest rate, and the loan term (duration). Here's a breakdown of the process:
Mortgage Loan Amount: The amount borrowed from the lender.
Interest Rate: The annual interest rate on the loan. It's divided by 12 to find the monthly rate.
Loan Term: The number of years to repay the loan. This is converted into months for the calculation (e.g., 30 years = 360 months).
Payment Frequency: Most mortgages are calculated with monthly payments, but other schedules (e.g., bi-weekly) can be used.
For investment properties, I always use a 30 year amortization to provide maximum flexibility and monthly payment frequency to align with when rent payments are received.
Mortgage Payment Formula:
The monthly payment (MMM) is calculated using the amortization formula:
M = Monthly mortgage payment
P = Mortgage loan amount
r = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (loan term in years × 12)
Example Calculation:
Loan amount (P) = $300,000
Annual interest rate = 5% (0.05)
Loan term = 30 years (360 months)
Follow these steps:
Convert the annual rate to a monthly rate: r = 0.05/12 = 0.004167
Calculate total number of payments: n =30×12 = 360
Plug into the formula:
Result: Monthly payment is approximately $1,610.46.
Mortgage Amortization Schedule
A part of every mortgage payment that is made goes towards the principal and the interest portions. Every month that you pay down the mortgage, the amount of principal grows and you contribute more and more to principal repayment. After the amortization period is over, the mortgage loan will have been fully repaid.
If you need help understanding how mortgages are calculated or if you would like a referral to a top mortgage broker to help you with your financing needs, contact me.