This piece was originally published on November 23, 2016, and was updated on October 19, 2022.
When you’re looking for a new home, you’re probably interested in budgeting your monthly expenses including how much money you’ll need to set aside each month for your mortgage.
If you’re thinking of getting a mortgage with Scotiabank, you can use Ratehub.ca’s Scotiabank mortgage calculator to estimate your monthly mortgage expense and budget for your other expenses.
To use a mortgage payment calculator, you’ll need the asking price of your new home, your down payment amount, the amortization period in which you’ll pay off your loan, the payment frequency and your mortgage rate. Once you have these numbers, you’ll be able to calculate your mortgage payment. By using a payment calculator, you’ll also be able to see how different variables (such as the payment frequency, amortization period, or down payment amount) will impact your mortgage payment.
Impact of mortgage payment frequency
When you’re creating your monthly budget, you may want to see what the difference will be between choosing accelerated biweekly or monthly mortgage payments. The best way to see the impact of changing your payment frequency is through comparing the total interest paid on the mortgage given the two scenarios.
Let’s assume the home you wish to purchase is $500,000 and you make a 5% down payment. The total mortgage required will be $492,100 (as you’ll need to pay $17,100 in mortgage insurance) and you’ve decided to choose a 25-year amortization period. If you qualify for Scotiabank’s current five-year fixed rate of 4.49% and make monthly payments, you’ll pay $324,172 in interest over the life of the mortgage (this assumes your interest rate stays the same for the entire amortization period). If you are interested in generating amortization schedules for different amortization period scenarios, you can use our amortization calculator.
However, if you make accelerated bi-weekly payments, you’ll pay $275,076 in interest. This results in $49,096 in savings. You’ll also pay your mortgage off three years earlier. Therefore, if your budget allows for monthly or accelerated bi-weekly payments, the accelerated bi-weekly option provides you with the most savings.
Impact of a lower mortgage rate
Getting the best mortgage rate is the easiest way to reduce your mortgage payment and the total amount of interest paid. By reducing your mortgage payments, you’ll be able to allocate more money to other expenses or savings.
To look at the impact of mortgage rates, let’s use the same example from above (a $500,000 home with a 5% down payment and a 25-year amortization period) but instead compare how the lowest rate on the market will impact your monthly payment.
With Scotiabank’s five-year fixed rate of 4.49%, your monthly mortgage payment will be $2,721 and you’ll pay $324,172 in total interest over 25 years. However, if you get the lowest five-year fixed rate on the market (2.14% as of Nov. 16), your monthly payment will be $2,117 and the total amount of interest you pay will be $143,059. Therefore, you will save $604 every month and $181,113 in interest.
This example shows the importance of comparison shopping. It’s important though to remember that a bank’s posted rate is typically a lot higher than the rate you’ll qualify for. If you call Scotiabank, you’ll likely be offered a lower rate closer to that of the best market rate.
To help conduct your comparison shopping, consider getting a mortgage broker. A mortgage broker will be able to get you the lowest rate on the market by acting as an intermediary between yourself and potential lenders. He or she will be able to compare multiple rates and even pass on volume discounts to you.
The bottom line
Determining your monthly expenses is extremely important and will provide you with an estimate of the cost of owning a home. Mortgage payment calculators can also help you budget by estimating the amount required for legal fees, land transfer taxes, and title insurance. Make sure to take advantage of mortgage payment calculators and consider the strategies above to reduce your interest costs.
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Flickr: Grant MacDonald