The Canadian compounding quirk
Section 8 of the Interest Act of Canada caps how mortgage interest can be compounded: not in advance, not more than half-yearly. The result is that all Canadian mortgages are compounded semi-annually, even though payments are made monthly, bi-weekly or weekly. US mortgages compound monthly. The 1–2% overstatement isn’t huge on a single payment, but over a 25-year amortization on a $400,000 mortgage it adds up to thousands of dollars of phantom interest if you use a US calculator.
Down-payment rules (federal)
- Up to $500,000: minimum 5% down
- $500,000–$1,500,000: 5% on the first $500K + 10% on the rest
- Over $1,500,000: minimum 20% down (no CMHC insurance available)
CMHC and default insurance
With less than 20% down on an eligible home, you must purchase mortgage default insurance from CMHC, Sagen, or Canada Guaranty. The premium is typically 2.8–4.0% of the mortgage amount and is added to your loan (you pay it down over the amortization). The insurance protects the lender, not you. The Office of the Superintendent of Financial Institutions (OSFI) B-20 stress test still applies on top.
Accelerated payments
The accelerated bi-weekly schedule pays off your mortgage roughly 3 years faster than the same total annual cost spread monthly. Same dollar paid per period — the compound-interest effect of paying earlier in each cycle is what reduces the total interest over the amortization.