Mortgage Amortization Canada: How Payments Are Calculated with Semi-Annual Compounding

What is Mortgage Amortization?

Amortization is the process of paying off a mortgage through regular payments over time. Each payment splits into principal (reducing your loan) and interest (the cost of borrowing). Early in the schedule, most of your payment goes to interest; later, most goes to principal.

Canadian Semi-Annual Compounding Explained

Unlike the US where mortgages use simple monthly interest, Canadian mortgages compound interest every six months — even if you pay monthly. This is regulated by OSFI Guideline B-20.

The formula to convert your annual rate to an effective monthly rate is:

Effective Monthly Rate = (1 + Annual Rate / 200) ^ (2 / 12) - 1

Example: 5% annual rate → (1 + 5/200)^(2/12) − 1 = 0.411% effective monthly rate.

25-Year vs 30-Year Amortization

Amortization	Monthly Payment (5%, $500K)	Total Interest	Total Cost
25 years	$2,908	$372,400	$872,400
30 years	$2,674	$462,640	$962,640

30-year amortization lowers your monthly payment by ~$234 but costs an extra $90,240 in interest over the life of the loan.

Accelerated Bi-Weekly vs Monthly Payments

An accelerated bi-weekly payment is half your monthly payment every two weeks. Since there are 26 bi-weekly periods (vs 12 months), you make the equivalent of one extra monthly payment per year.

• Monthly: $2,908/month = $34,896/year
• Accelerated Bi-Weekly: $1,454 every 2 weeks × 26 = $37,804/year
• Savings: Pay off your mortgage ~4 years earlier, save ~$50,000 in interest

How to Read an Amortization Schedule

An amortization schedule shows every payment over the life of your loan. Key columns:

• Payment: Your fixed periodic amount
• Principal: How much of that payment reduces your loan
• Interest: How much goes to the lender
• Balance: Remaining loan after each payment

Extra Payments and Lump Sums

Most Canadian mortgages allow 10-20% lump sum prepayment annually. Adding just $100/month to your payment on a $500K mortgage at 5% can save over $40,000 in interest and cut 3+ years off your amortization.

Calculate Your Amortization Schedule

Use our Mortgage Calculator to see your full amortization schedule, compare payment frequencies, and test extra payment scenarios — all with Canadian semi-annual compounding.