3 Things About Mortgage Calculators in Canada You Must Know
In Canada, you can find several mortgage calculators in the market. But which one is more appropriate for you?
Let us find out.
Undoubtedly, mortgages are complex so are calculators. You will deal with mortgage rates, insurance policies, and down payment. After that, continue making monthly mortgage payments with no default. Or you can foreclose your house mortgage.
Thus, to ease out the entire process of mortgage, which could otherwise be cumbersome, financial institutions must develop mortgage calculators.
We will discuss three mortgage calculators in the blog, which serve different purposes. Also, we will tell you how you can calculate mortgage interest rates in Canada.
Three Mortgage Calculators
1. Mortgage Payment Calculator
Do you wish to know about your monthly mortgage payments? A mortgage payment calculator does the same. It lets you calculate what you will pay every month. This calculation depends on several factors. These are:
| Factors | Explanation |
| Mortgage Loan | To finance your residential accommodation – you might get a mortgage loan. The higher the quantum of this loan, the higher your monthly mortgage payments. |
| Mortgage Rate | The mortgage companies, banks, and lenders charge the mortgage rate based on your credit score, payment history, and other parameters. The higher the mortgage rate, the higher your monthly mortgage payments. |
| Down Payment | It refers to the amount that you pay in the very beginning out of your funds–savings, monetary help from relatives, friends, etc. You cannot get a loan to finance your down payment. The down payment reduces the overall quantum of the mortgage loan you wish to get. The higher the down payment, the lower your monthly mortgage payments. |
| Mortgage Term | You should pay the monthly mortgage payments for a specified period, known as the Mortgage Term. The longer your mortgage term, the lower your monthly mortgage payments. Lenders divide mortgage repayments by the number of months/years. |
| Cost of Insurance Policy | If you have gathered less than 20% of the purchase price of the house property, you will be under a compulsion to buy a “default mortgage insurance policy” primarily offered by CMHC (Canada Mortgage and Housing Corporation). Usually, most homebuyers prefer to get finance for the cost of this insurance policy. Here, the bank or lender adds the cost to the purchase price and offers a composite mortgage loan. In effect, since your mortgage loan gets inflated because of the addition of the cost of an insurance policy, you end up paying a higher monthly mortgage payment. |
The five factors mentioned above are pillars that decide how much you will pay each month. While using a mortgage calculator, you will be required to enter all these details. The calculator, in return, will provide you with your monthly mortgage payment.
Sometimes, a few calculators give you an option to add the value of all the associated costs for which you are getting finance from your lender. These include a few closing costs, property tax, the cost of default insurance (as mentioned above), and the cost of other insurance policies, which you might prefer.
2. Mortgage Affordability Calculator
You might wish to buy a penthouse or a beach-side villa. But all you can afford is a condominium. How do you determine this?–A mortgage affordability calculator comes to your rescue.
It tells you whether you can afford the house you are buying and meet those monthly mortgage payments without defaulting for the entire length of the mortgage term.
The mortgage affordability calculator uses two different ratios to tell where you stand. These are:
Let us understand both GDS and TDS with a practical example.
Your monthly household income (before taxes) is $10,000. And your monthly mortgage payments are $3,000. Besides this, you are also paying $800 for credit card loans and $1,500 for the personal loan every month.
In such a case, your GDS ratio will be:
Your TDS ratio will be:
To understand the relevance of the GDS and TDS in a better way, we present to you the recommendations of the CMHC. These are:
| Mortgage Affordability Ratio | Ideal Percentage |
| GDS (Gross Debt Service) Ratio | Must be less than 39% |
| TDS (Total Debt Service) Ratio | Must be less than 44% |
Hence, if your GDS and TDS are over 39% and 44%, we advise you to improve these scores and search for alternative residential properties for lower purchase prices.
3. Mortgage Term Calculators
Whatever your mortgage term is ten years, 20 years, or 30 years, you will be required to pay mortgage payments each month, up to the entire length of these tenures, provided you are not making extra payments.
A mortgage term calculator tells you the best tenure you can get. The calculation depends on the following factors.
- The mortgage loan, which you will assume
- Your lender for the different tenures offers the interest rates to you
- The years after which you plan to retire
These calculators tell you an ideal mortgage term which you should go. Some extended versions of these calculators might require you to share information about the following.
- Your current level of savings
- Your monthly budget and
- Your risk appetite, how much risk you can tolerate
The length of the mortgage term has a profound impact on your finances. Learn this through the relationship between:
- The period of the Mortgage Term,
- The monthly Mortgage Payments and
- The Mortgage Interest you will pay through the entire life of the mortgage loan
| Mortgage Term | Monthly Mortgage Payments | Overall Mortgage Interest |
| Longer | Lesser | Higher |
| Shorter | Higher | Lesser |
