Mortgage Rate Comparison Calculator
| Total Cost: | $872,407 |
|---|---|
| Principal | $500,000 |
| Interest | $372,407 |
| Total Cost: | $959,710 |
|---|---|
| Principal | $500,000 |
| Interest | $459,710 |
About the Mortgage Comparison Calculator
This mortgage comparison calculator lets you compare between two different mortgages. The mortgages might have a different interest rate, mortgage amount, amortization, payment frequency, or a combination of these differences. By comparing mortgages, you'll be able to see the difference in mortgage payment and the total lifetime cost of the mortgage.
To use this mortgage comparison calculator, you’ll need to enter the following inputs:
- Mortgage Amount: This is the amount of money that you are borrowing.
- Interest Rate: Also known as mortgage rate, this determines the interest that you will pay on your outstanding mortgage balance.
- Amortization: This is how long it will take for you to fully pay off your mortgage. A shorter amortization will require higher mortgage payments.
- Payment Frequency: This is how often you will make mortgage payments.
You will then get the following results from this calculator:
- Payment Amount: The amount of each mortgage payment, based on your chosen payment frequency. For example, your monthly payment amount, or bi-weekly payment amount.
- Lifetime Mortgage Costs: The total cost of your mortgage, broken down into principal and interest. While principal will be the same, the difference in total cost has to do with interest.
Using this calculator can help you make a more informed decision when it comes to choosing the right mortgage.
Comparing Mortgages
Comparing Mortgage Rates
A small difference in mortgage rates can lead to a big difference in how much your mortgage will really cost over the years. That’s why you should look for the best mortgage rates in Canada to make sure that you’re not paying more mortgage interest than you really have to.
Let’s compare a $500,000 mortgage with a 25-year amortization and monthly payments. Bank A is offering a mortgage rate of 5.0%, while Bank B is offering a mortgage rate of 5.2%. That’s a small difference, but what impact will it have on the cost of your mortgage?
Comparing Mortgage Rates
| Mortgage Rate | 5.0% | 5.2% |
|---|---|---|
| Monthly Payment | $2,908 | $2,965 |
| Total Interest | $372,407 | $389,564 |
A $500,000 mortgage with a 5% rate would have a monthly payment of $2,908. In comparison, a 5.2% rate would have a monthly payment of $2,965, which is $57 more per month. Over the course of the mortgage, the 5.2% mortgage would cost $17,157 more than the 5.0% mortgage. That small difference in rates adds up to thousands of dollars of extra interest charges!
It's important to remember that even a small difference in interest rates can make a big difference in the total cost of your mortgage.
Comparing Amortization Periods
The mortgage amortization period is the length of time it takes to pay off the mortgage loan. The longer the amortization period, the lower your monthly payments will be. That’s because there’s more time to pay off your mortgage, allowing for each payment to be smaller. The shorter the amortization period, the higher your payments will be.
In Canada, the most common amortization period is 25 years, which is also the default for this calculator. Some mortgages, such as insured mortgages, cannot have an amortization over 25 years. Other mortgages might allow a longer amortization, such as 30 years.
The trade-off when choosing your amortization period has to do with the mortgage payment and your budget. With a shorter amortization period, you'll pay off your mortgage quicker but you'll also have higher monthly payments. If you can afford making larger payments, you’ll be saving money due to less total interest being charged. On the other hand, with a longer amortization period, your monthly payments will be lower but it will take you more time to pay off the loan. You’ll be paying more interest over the life of your mortgage loan too.
Let’s compare a $500,000 mortgage with a 5% mortgage rate and monthly payments. You’re thinking about choosing the standard 25-year amortization, but want to see what impact it would have if you shorten or lengthen your mortgage’s amortization.
Comparing Mortgage Amortization
| Amortization | 20 Years | 25 Years | 30 Years |
|---|---|---|---|
| Monthly Payment | $3,286 | $2,908 | $2,668 |
| Total Interest | $288,550 | $372,407 | $460,643 |
By choosing a 20-year amortization instead of a 25-year amortization, you’ll be saving $83,857 in interest charges but you’ll need to pay an extra $378 in mortgage payments each month.
By choosing a 30-year amortization instead of a 25-year amortization, you’ll be paying an extra $83,236 in interest charges but you’ll save $240 in mortgage payments each month.
What does this mean to you? When it comes to making an informed decision about which amortization period is right for you, it’s important to look at the larger picture and consider your budget and lifestyle. You may be able to afford higher payments now, but what if your financial situation changes?
Having a longer amortization gives you cushion room, and you can still make mortgage prepayments should you have extra money left over. Prepayments will reduce your mortgage amortization without forcing you to make permanently larger monthly payments. This allows you to have flexibility in your budget, and manage your cash flow more easily.
Comparing Payment Frequency
Payment frequency is how often you’ll make mortgage payments. Monthly payments are the most common and involve making one payment per month. In Canada, the typical payment frequencies are monthly, semi-monthly, bi-weekly, and weekly. There are also accelerated options: accelerated bi-weekly and accelerated weekly.
Accelerated payments result in an extra full payment each year due to how they are structured. With accelerated bi-weekly payments, you'll be making a payment every two weeks, but with the amount being half of what a monthly payment would be. Since you'll end up making 26 payments through a year, that is equivalent to making 13 monthly payments per year - a whole extra month!
Accelerated payments save you money by paying down your mortgage faster. To see how much you can save by switching to an accelerated payment frequency, let’s compare a $500,000 mortgage with a 5% mortgage rate and a 25-year amortization.
Comparing Accelerated Mortgage Payments
| Payment Frequency | Monthly | Accelerated Bi-Weekly | Accelerated Weekly |
|---|---|---|---|
| Payment | $2,908 | $1,454 | $727 |
| Mortgage Paid Off In | 25 Years | 21 Years, 6 Months | 21 Years, 5.75 Months |
| Total Interest | $372,407 | $311,339 | $310,612 |
By making accelerated bi-weekly payments instead of monthly payments, you’ll be paying off your mortgage 3.5 years earlier and save $61,068 in interest! You can save slightly more by choosing accelerated weekly payments as well.
More Frequent Payments Saves You Money 💡
Did you know that making a shorter payment frequency can save you money while still being the same amount paid per month? Since interest compounds, by paying more often you are allowing less of your mortgage principal to have interest charged on it. This slightly saves you money, which can add up over the life of your mortgage.
We can also compare making regular monthly mortgage payments versus bi-weekly and weekly payments, on a $500,000 mortgage with a 5% mortgage rate and a 25-year amortization.
Comparing More Frequent Mortgage Payments
| Payment Frequency | Monthly | Bi-Weekly | Weekly |
|---|---|---|---|
| Payment | $2,908 | $1,341 | $670 |
| Total Interest | $372,407 | $371,441 | $371,027 |
You’ll save $966 by making bi-weekly payments vs. monthly payments, and an additional $414 with weekly payments over bi-weekly payments. While the savings aren’t great, it’s still something and doesn’t require you to pay a total amount greater than what you would pay with monthly payments.