Buying a home is one of the biggest financial decisions you’ll make, and it often comes with a lot of numbers. If math isn’t your thing, don’t worry. You don’t need to be a calculator wiz to understand mortgage basics. You just need to know what to expect, and how it affects your bottom line.
Let’s breakdown mortgage math into simple, real-life terms so you can feel confident at every step of your home buying journey.
Start with the Big Picture
When people hear the word “mortgage”, they often just think about the price of the home. But there’s more to it than that. Here are the main pieces of the puzzle:
- Down Payment
- Loan amount (a.k.a. your mortgage)
- Interest Rate
- Term and amortization
- Closing costs
- Monthly payments
We’ll talk through each one, with no complex formulas required.
1. Down Payment: Your First Investment
The down payment is the upfront money you pay toward the purchase price of your home. In Canada, here’s what’s typically required:
- 5% of homes under $500,000
- 5% on the first $500,000 and 10% on the remainder for homes between $500,000 and $999,999
- 20% minimum for homes $1 million and up
A bigger down payment will lower your monthly payment and may help you avoid CHMC insurance (required for down payments under 20%).
Example: If your home costs $400,000, a 5% down payment would be $20,000.
Are You a First-Time Home Buyer?
2. Closing Costs: The Sneaky Extras
Many first-time buyers are surprised by closing costs. These are the extra fees due when your home purchase “closes”. These typically include:
- Legal fees
- Land transfer taxes
- Home inspection
- Title insurance
- Appraisal fees
Expect to budget 1.5%-4% of the home’s purchased price for closing costs.
Example: for a $400,000 home, you’d want to allocate $6,000-$16,000 extra
3. The Mortgage: How Much Are You Really Borrowing?
Take the purchase price and subtract your down payment. That will be your mortgage loan amount.
For example:
- Home price: $400,000
- Down Payment: $20,000
- Mortgage Loan = $380,000
- CMHC insurance (if applicable)
The mortgage loan will be the amount the lender gives you to buy your home, and you’ll pay this back over time with interest.
4. Interest Rate & Amortization: How Long Will You Pay?
The interest rate is what you pay the lender for borrowing money. Even a small difference in rate can have a big effect on how much you pay overall.
Then there’s amortization. This is the total length of time you will take to pay off your mortgage. Most people choose 25 or 30 years.
Shorter amortization = higher payments but less interest
Longer amortization = lower payments but more interest
You’ll also select a term, usually 1-5 years, which is how long your interest rate is locked in before you renew.
5. Monthly Payments: What It Actually Costs You
Your monthly payments as a homeowner would include:
- Principal (paying off your loan) and interest
- Property taxes (can be made monthly through programs like TIPP)
- Insurance
- Condo fees (when applicable)
- Utilities
Use our mortgage calculator to get an estimate
6. Other Things to Keep in Mind
Debt Ratios
Lenders will look at your income and debts to make sure you can afford the mortgage. You may hear terms like GDS and TDS. These are ways that lenders measure how much of your income goes towards housing and debt.
Pre-approval
Getting pre-approved means you know how much you can afford before house hunting, and it shows sellers that you’re serious.
Stress Test
Even if you qualify at your offered rate, lenders need to make sure that you can also afford a higher rate, just in case. This is what we call mortgage stress testing and it’s a standard practice in Canada.
Read more about mortgage stress testing
Land Transfer Tax
When buying a home, many first-time home buyers are surprised by the land transfer tax, which is a fee you pay to the provincial government when the property changes hands. The amount varies by province and the price of the home. It’s an important cost to factor into your closing budget so you’re not caught off guard on possession day.
Calculate land transfer tax in Manitoba
Legal Fees
When you buy a home, hiring a lawyer is not optional – it’s a key part of the process. Legal fees cover services like reviewing your purchase agreement, handling the title transfer, registering your mortgage, and making sure all the paperwork is in order. Most buyers can expect to pay around $1,000-$2,000 depending on the complexity of the purchase. It’s a necessary step that protects you and ensures your new home is legally yours.
Let’s Do the Mortgage Math Together
If numbers aren’t your thing, you’re not alone. Mortgage math can feel overwhelming, but that’s why working with trusted financial advisors, or a mortgage specialist can make all the difference.
We can help you understand what you can afford, explore different mortgage options, plan for future costs and surprises, and stay confident throughout the process.
Whether you’re buying your first home or renewing your current mortgage, we’re here to talk you through the numbers in a way that makes sense to you. Connect with one of our mortgage advisors today and let’s take the guesswork out of mortgage math.
