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Amortization Calculator

Have you taken out a loan for a mortgage, car or tuition? Our calculator will generate an amortization schedule to help you track your principal and interest, and how much time you have to pay it off.

Ratehub.ca's amortization calculator

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Choose either a mortgage loan or a general loan (e.g. personal loan, student loan, etc.).

Amortization schedule

Amortization: Frequently asked questions

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What is the difference between a secured and an unsecured loan?


Is a longer or shorter amortization period better?


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Jamie David

Whether you are taking out a mortgage or just about any other type of loan, you need to understand the concept of amortization. Read on to learn more about what amortization is, how to understand an amortization schedule and how to use our amortization calculator. 

What is amortization? 

The most widely used meaning of amortization, which is what we are talking about here, is to regularly repay a loan over time. An example of amortization that we commonly see is a mortgage - the homeowner takes out a mortgage loan and makes monthly payments to the lender. Part of the payment goes towards the interest on the loan (and things like mortgage default insurance and property taxes), while the rest goes towards the principal. When the principal has been repaid in full, the loan has been paid off. Other examples of amortized loans include car loans and personal loans. The total amount of time that you have to pay off the principal of a loan is called the amortization period.


How long does your amortization period have to be? 

If you are putting less than 20% down payment on your home, your mortgage loan is considered a high-ratio mortgage and will require mortgage default insurance (often known as CMHC insurance). This protects your lender in the event that you are unable to pay your mortgage and default on the loan. The maximum amortization period for a high-ratio mortgage is 25 years. 

If you are able to make a down payment of 20% or more on your home, you have a conventional mortgage and do not require mortgage default insurance. In this case, you can have an amortization period of up to 35 years

Is a longer or shorter amortization period better?

In general, a longer amortization period means that you’ll have smaller regular payments, but you’ll pay more in interest over time, while with a shorter amortization period, the opposite is true. You can find more information about mortgage amortization along with some examples of total interest paid over short and long amortization periods elsewhere on our website.

 

What is an amortization schedule?

An amortization schedule is a table that lists out your regularly scheduled payments on a loan. The schedule shows the date and total amount of the payment, and also breaks down how much of that payment is going towards the principal versus how much is going towards the interest (and any other costs and fees). Along with this information, the amortization schedule shows you how much you have left to repay after each regular payment. 

How do you calculate amortization? 

To calculate the amortization on a loan, you would apply the following formula:

principal payment = monthly payment - (loan balance x interest rate/12 months)

In general, your lender will specify your monthly payment at the time that you take out a loan, making this calculation quite straightforward. 

If you haven’t yet taken out a loan and wanted to estimate your monthly payment for planning purposes or to compare two different products, for example, you would want to calculate your monthly payment as well. In order to do this, you would need to use the formula below, where i = monthly interest rate and n = number of payments:

Formula for how to calculate amortization.

To obtain your monthly payment, you’ll need to divide your monthly interest rate (i) by 12. So, let’s say that your annual interest rate is 4%. Your monthly interest rate will then be 0.33% (4% annual interest rate ÷ 12 months).

You’ll also need to multiply the number of years in your loan term by 12. So, for example, a 25-year mortgage would have 300 payments (25 years x 12 months).

How do you use Ratehub.ca’s amortization calculator?

Our amortization calculator makes it easy for you to simulate different loan scenarios to see how much your regularly scheduled payments will be, and how much of them will go towards the principal versus interest. You just need to input a few pieces of information, and the calculator will estimate an amortization schedule for you. 

As you fill in the fields, you’ll notice that if your mouse hovers over a term for a few seconds, you’ll get a helper tip that gives you more information about that term. For example, if your mouse hovers over the term “loan type”, the helper tip will provide you with more information about both mortgages and general loans. 

You’ll see two different options right away - “mortgage” and “loan”. 

Mortgage

To get started with this option, you’ll need to input the following information:

  • Home price: Enter the price of the home you want to buy. 
  • Down payment: Enter the amount of money that you think you’ll be able to put down. 
  • Interest rate: Enter the interest rate. You can see the best mortgage rates on the market here, for example, to estimate the interest rate for a mortgage. 
  • Amortization period: Enter the length of time that you think you’ll need to repay the mortgage loan. Keep in mind that the maximum amortization period for an insured mortgage (where your down payment was less than 5% of the purchase price) is 25 years, and the maximum amortization period for uninsured mortgages in Canada is 35 years. 

Loan

To proceed with this more general option, you need to enter the following information:

  • Loan amount: Enter the total amount of the loan you wish to take out. This is entirely dependent on what your needs are.
  • Interest rate: Enter the interest rate on the loan. 
  • Loan period: Enter the period of time that you think it will take you to repay the loan. 

It’s important to remember that, for both options, this calculator is just providing you with an estimate based on the information that you have provided. 

How to read your results

Once you’ve entered all of your information, our amortization calculator will generate an amortization schedule for you. You’ll see a dark blue line going from the top left-hand corner to the bottom right-hand corner - this is the balance remaining on your loan. It starts off at what the amount of your balance is today, and finishes when the amount is $0. 

The light blue portion of the amortization schedule (bar chart) indicates the amount of interest your payment is going to versus the principal. You’ll see that over the course of the amortization period, the amount you pay in interest versus principal steadily decreases. 

The green portion of the amortization schedule (bar chart) indicates the amount of the principal on your loan that your payments are going to. As your amortization period progresses, the portion of the principal that your payments go to versus the interest will increase. 

You’ll notice that over the course of the amortization period, a larger portion of your regular payments will go towards the principal, and a smaller portion will go towards the interest. The total size of your loan will also go down. The last payment in your amortization schedule will leave you with a balance of $0, meaning that you have paid off your loan.

In addition to the amortization schedule, the calculator will also display a table that breaks down the following, showing it year-by-year: 

  • The total amount you have paid towards the loan;
  • How much you have paid towards the principal;
  • How much you have paid towards interest; and
  • The remaining balance on the loan


Should you pay your loan off early?

While paying off your loan early can potentially save you thousands of dollars in interest fees over time, you need to consider your personal financial circumstances as well as the conditions on the loan you took out. Most lenders allow for what are called pre-payment privileges, which allow you to increase the size of your monthly payments, increase the frequency of your monthly payments and/or pay a lump sum against the loan. It’s important to talk to your lender if you’re unsure about your pre-payment privileges - you don’t want to accidentally break your loan conditions and have to pay a penalty! 

 

Can you change the length of your amortization period? 

In the case of a mortgage loan, you have the opportunity to change the length of your amortization period whenever you are renewing your mortgage at the end of your mortgage term, or any other time you are renegotiating your mortgage (for example, when refinancing). Let's say your financial profile has improved substantially from the time you first took out the loan, and you are now able to make a higher monthly payment, for example. In this case, you might want to shorten the length of your amortization period in order to reduce the amount of interest you'll pay over time. Or, conversely, you may find that you are having difficulty keeping up with your monthly payments and want to extend the length of your amortization period. It's always helpful to speak with a mortgage broker if you're unsure of how to proceed in these situations, as they can provide you with expert, personalized advice for free. 

When it comes to other types of individual loans, such as auto loans or student loans, the term length of the loan and the amortization period length are typically the same (in contrast to mortgage loans, which usually consist of multiple terms throughout the amortization period). Therefore, if you wish to adjust the amortization period of non-mortgage loans, you'll likely have to renegotiate for a completely new loan with new terms and conditions. 

 

For more information, check out these helpful pages!

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Jamie David, Director of Marketing and Head of Mortgages

Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read more

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