How Canadian Mortgage Payments Are Calculated (Semi-Annual Compounding)

Canadian fixed-rate mortgage payments are calculated with interest compounded semi-annually, not monthly. The posted rate is converted to an equivalent monthly rate, (1 + r/2)^1/6 − 1, and then the standard annuity formula is applied. That makes a Canadian payment slightly lower than a US-style calculator would show — $11.62 a month on $400,000 at 4.94%.

The formula step by step

i = (1 + r ÷ 2)^{2 ÷ 12} − 1 payment = L × i ÷ (1 − (1 + i)⁻ⁿ)

Start with the quoted annual rate r = 4.94%.
Semi-annual rate: r ÷ 2 = 2.470%.
Effective annual rate: (1 + 0.02470)² − 1 = 5.0010%.
Equivalent monthly rate: (1 + 0.02470)^1/6 − 1 = 0.40749% (vs 0.41167% if you simply divided by 12).
Number of payments: 25 years × 12 = 300.
Payment: $400,000 × 0.0040749 ÷ (1 − (1 + 0.0040749)⁻³⁰⁰) = $2,312.78.

For other frequencies replace 12 with 24 (semi-monthly), 26 (bi-weekly) or 52 (weekly) in the exponent and in n. Accelerated payments are simply the monthly payment ÷ 2 or ÷ 4.

Why semi-annual?

Section 6 of the federal Interest Act requires blended-payment mortgages to state the rate “calculated yearly or half-yearly, not in advance”. Canadian lenders settled on half-yearly compounding for fixed-rate mortgages. Variable-rate mortgages are generally compounded monthly, so the quoted rate and payment calculation differ slightly.

Canadian vs US-style payment

Quoted rate	Effective annual	Monthly rate	Canadian pmt	Monthly-compounded pmt	Difference
4.00%	4.040%	0.3306%	$2,104.08	$2,111.35	$7.27
4.50%	4.551%	0.3715%	$2,213.89	$2,223.33	$9.44
4.94%	5.001%	0.4075%	$2,312.78	$2,324.40	$11.62
5.50%	5.576%	0.4532%	$2,441.57	$2,456.35	$14.78
6.00%	6.090%	0.4939%	$2,559.23	$2,577.21	$17.98
7.00%	7.122%	0.5750%	$2,801.66	$2,827.12	$25.45

$400,000 over 25 years. The “monthly-compounded” column is what many generic or US calculators show.

The interest in your first payment

In the first month on $400,000 at 4.94%, interest is $1,629.97 (balance × monthly rate) and the remaining $682.81 reduces principal. That ratio shifts every month: by the end of the first 5-year term you will have paid $92,500 of interest and $46,300 of principal.

Adding CMHC insurance

If your down payment is under 20%, the premium is calculated on the loan and added to it before the payment formula is applied. On $400,000 borrowed with 5% down, the 4.00% premium makes the mortgage $416,000 and the payment $2,405.29.

FAQ

Are Canadian mortgages compounded monthly or semi-annually?

Fixed-rate mortgages are compounded semi-annually, as the Interest Act requires rates on blended-payment mortgages to be stated yearly or half-yearly. Variable-rate mortgages are usually compounded monthly.

What is the formula for a Canadian mortgage payment?

Monthly rate i = (1 + r/2)^(1/6) − 1; payment = L × i ÷ (1 − (1 + i)^−n), where L is the mortgage amount and n the number of monthly payments.

What is the monthly payment on a $400,000 mortgage at 4.94%?

$2,312.78 over 25 years with semi-annual compounding. A monthly-compounded calculator would show $2,324.40.

Why does my bank’s payment differ from an online calculator?

Many generic calculators compound monthly. Canadian fixed-rate mortgages compound semi-annually, which gives a slightly lower payment for the same quoted rate.

Related mortgage articles

CMHC insurance explainedPremiums 2.80%–4.00%, PST, $1.5M cap Mortgage stress test calculatorQualify at 6.94% on a 4.94% fixed 30-year amortization rulesFirst-time buyers & new builds Fixed vs variable mortgage 20264.94% fixed vs 3.95% variable Minimum down payment in Canada5% / 10% / 20% rules by price Accelerated bi-weekly paymentsHow much faster you pay off Income needed for a mortgage in CanadaSalary for $300K–$1.5M homes Mortgage on a $400,000 house$2,285/mo with min. down Mortgage on a $600,000 house$3,397/mo with min. down

Assumptions & sources

Bank of Canada raised the target for the overnight rate by 25 basis points to 2.50% on 28 October 2026 (Bank Rate 2.75%, deposit rate 2.45%); next decision 9 December 2026. Big-bank prime rose to 4.70% on 29 October 2026.
Typical rates: 4.94% 5-year fixed and 3.95% 5-year variable are the median of the 17 lenders listed in Ratehub.ca’s rate tables updated 2 November 2026 (fixed range 4.44%–5.99%, variable 3.68%–4.70%). Insured (high-ratio) mortgages often get slightly lower rates than uninsured ones.
Fixed-rate payments use Canadian semi-annual compounding (Interest Act); variable-rate payments use monthly compounding, which most lenders apply to variable mortgages. Rates are assumed constant for the whole amortization.
CMHC homeowner premiums on the loan amount: 4.00% above 90% loan-to-value, 3.10% for 85.01–90%, 2.80% for 80.01–85%, plus 0.20% for amortizations over 25 years. Provincial sales tax on the premium in Ontario (8%), Quebec (9%) and Saskatchewan (6%) must be paid in cash at closing.
Minimum down payment (Department of Finance rules from 15 December 2024): 5% of the first $500,000, 10% of the portion from $500,000 to $1.5 million; 20% at $1.5 million or more, where default insurance is not available. 30-year insured amortizations: first-time buyers and buyers of new builds.
Stress test: qualify at the greater of 5.25% or the contract rate + 2 points (OSFI Guideline B-20; the same floor applies to insured loans). Income needed uses CMHC’s 39% GDS / 44% TDS limits, property tax of 1% of the price a year and $100/month heating. Take-home pay: 2026 Ontario, from our Canada salary after tax engine.
National average price: CREA, September 2026 ($666,538, −1.6% year over year).

How Canadian mortgage payments are calculated