Why Canadian Mortgages Compound Differently (And Why US Calculators Lie to You)
By Jordan Ellis · Published · Reviewed
Quick Answer
Canadian law requires fixed mortgage rates to compound semi-annually, so a 5% Canadian rate costs about the same as a 4.95% US monthly-compounded rate. The monthly conversion is (1 + rate/2)^(1/6) − 1. US mortgage calculators use rate/12 and overstate a Canadian payment by about $15/month on a $500,000, 25-year mortgage at 5%, or roughly $4,500 over the amortization.
Paste a Canadian mortgage into a US calculator and you’ll get a confident, precise, wrong answer. The culprit is a legal quirk most borrowers never learn: compounding frequency.
The rule
Canada’s Interest Act requires fixed mortgage rates to be quoted with semi-annual compounding — the annual rate is applied in two halves per year. American mortgages compound monthly. Same quoted rate, different real cost.
The conversion that matters
To turn a Canadian semi-annual rate into the monthly rate your payment is built from:
monthly rate = (1 + annual ÷ 2)^(1/6) − 1
At 5%: (1.025)^(1/6) − 1 ≈ 0.4124%/month — versus the American 5% ÷ 12 = 0.4167%/month. The Canadian borrower gets a small, legislated discount.
What it’s worth in dollars
On a $500,000 mortgage, 25-year amortization, quoted 5%:
| Convention | Monthly payment | Total interest |
|---|---|---|
| Semi-annual (Canada, fixed) | ~$2,908 | ~$372,400 |
| Monthly (US convention) | ~$2,923 | ~$376,900 |
| Canadian discount | ~$15/month | ~$4,500 |
Not life-changing — but it’s your money, and any calculator that says otherwise is wrong for your mortgage. The LoanLens mortgage calculator uses the correct Canadian formula, applies CMHC premium tiers automatically, and uses amortization (not “term”) the way Canadian lenders do.
The exceptions
- Variable and adjustable-rate mortgages usually compound monthly — the semi-annual rule is a fixed-rate creature
- US comparisons: when American fintech content quotes payment examples, assume they’re monthly-compounded and a touch high for Canada
- Everything else (credit cards, lines of credit, car loans) compounds daily or monthly regardless of country
Bottom line
Two mortgages with identical quoted rates can cost different amounts depending on the compounding convention — and most online tools assume the American one. When the stakes are hundreds of thousands of dollars, use a calculator built on Canadian law: the mortgage calculator is exactly that.
Official sources
Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed .
- Mortgage prepayment penalties (Financial Consumer Agency of Canada)