If you calculate a Canadian blended mortgage payment the way a US calculator does — dividing the annual rate by 12 — you will charge the borrower more than the mortgage says.
What the Interest Act requires
For mortgages repaid in blended payments of principal and interest, the Interest Act requires the mortgage to state the principal and the rate of interest calculated yearly or half-yearly, not in advance. Canadian lenders conventionally use half-yearly (semi-annual) compounding. If the statement is missing or wrong, the Act limits the interest that can be recovered — so the calculation and the wording matter.
Interest-only loans don’t blend principal into the payment, so the rate you set is applied directly.
The calculation
With an annual rate i compounded semi-annually, the equivalent rate for each payment period is:
periodic rate = (1 + i ÷ 2)^(2 ÷ n) − 1, where n is payments per year (12 for monthly).
The payment is then the standard annuity formula:
payment = P × r ÷ (1 − (1 + r)^−N), with r the periodic rate and N the number of payments in the amortization.
Worked example
$400,000, 6%, 25-year amortization, monthly payments (N = 300).
| Method | Monthly rate | Monthly payment |
|---|---|---|
| Semi-annual compounding (Canadian) | (1.03)^(1/6) − 1 ≈ 0.4939% | $2,559.23 |
| Monthly compounding (US-style, 6% ÷ 12) | 0.5000% | $2,577.21 |
The difference is $17.98 a month — over $5,000 across 25 years — and it would be charged on a rate the mortgage doesn’t state.
Re-amortizing after a change
When a payment date, rate or frequency changes partway through, re-amortize the current balance over the remaining amortization, not the original 25 years. Re-amortizing over the full original period quietly lowers the payment and stretches the loan.
How Amortivo handles it
Amortivo calculates every blended payment with semi-annual compounding, uses the same rule on every screen and document, and re-amortizes over the remaining amortization after any change. See loan servicing.