How ClearKey Calculates Mortgage Numbers

Canadian mortgage compounding

Canadian mortgages compound interest semi-annually, not in advance. This is required by section 6(1) of the federal Interest Act (R.S.C. 1985, c. I-15). American mortgage calculators that compound monthly will give materially different (and incorrect for Canada) numbers.

To convert an advertised annual rate into a monthly payment, ClearKey first computes the effective annual rate (EAR) using semi-annual compounding, then derives the equivalent monthly rate.

Worked example: a $680,000 mortgage at 4.29% over 25 years. EAR is 4.336%, monthly rate is 0.354%, n is 300, payment is $3,690.18. American monthly compounding on the same inputs would yield approximately $3,696.77 — a small difference per month but thousands of dollars over the term.

This formula is used in the Mortgage Payment, Amortization, Rent vs Buy, GDS/TDS, What Would It Take, and CMHC calculators wherever a monthly mortgage payment is computed.

The OSFI stress test (B-20)

The mortgage stress test was introduced by the Office of the Superintendent of Financial Institutions (OSFI) in 2018 and is set out in Guideline B-20: Residential Mortgage Underwriting Practices and Procedures. It applies to all federally regulated lenders, which means almost every mortgage in Canada except those from credit unions in some provinces and a few private lenders.

The rule, in plain language: lenders must qualify you at the greater of 5.25% or your contract rate plus 2 percentage points. The 5.25% floor was set by OSFI on June 1, 2021 and remains in effect.

Worked examples:

• 5-year fixed at 4.29% → qualifying rate is 6.29% (contract + 2)
• 5-year fixed at 3.10% → qualifying rate is 5.25% (the floor kicks in)
• Variable at prime − 0.75% (prime 4.45% → 3.70%) → qualifying rate is 5.70% (contract + 2)

The qualifying rate is what lenders use to test whether your income covers the payment, but it is not the rate you actually pay. Your monthly payment is calculated on the contract rate. The stress test only governs whether the mortgage gets approved.

GDS and TDS qualifying ratios

Lenders evaluate your ability to carry a mortgage using two debt-service ratios. These are industry-standard limits used by every federally regulated Canadian lender and reflect the underwriting guidelines published by CMHC.

Gross Debt Service (GDS) ratio — capped at 39%

GDS measures the share of your gross monthly income that goes to housing. It includes:

• Mortgage payment (calculated at the qualifying rate, not your contract rate)
• Property tax (annual divided by 12)
• Heating cost (CMHC default: $150/month if not specified)
• 50% of monthly condo fees, if applicable

Total Debt Service (TDS) ratio — capped at 44%

TDS adds all your other monthly debt obligations to the GDS calculation: car loans, student loans, credit card minimum payments, lines of credit, and other recurring debt.

You must pass both ratios to qualify. Different lenders may apply slightly stricter internal limits (some go to 35% / 42% for clients with marginal credit), but the industry-standard ceilings used in the ClearKey calculators are 39% and 44%.

Source: CMHC's homeowner mortgage loan insurance documentation defines the GDS/TDS limits used by insured mortgages.

CMHC insurance premiums

If your down payment is less than 20% of the purchase price, your mortgage must be insured. The premium is added to the loan amount and amortized over the life of the mortgage. There are three main insurers in Canada — CMHC, Sagen, and Canada Guaranty — and they publish identical premium schedules.

Premium tiers (effective for new applications)

December 2024 changes (now in effect)

Effective December 15, 2024, the federal government made two material changes to the insured mortgage rules:

• The maximum insurable home price was raised from $1,000,000 to $1,500,000. At or above $1.5M, no insured mortgage is available — you must put down 20% or more.
• 30-year amortization for insured mortgages was extended to all first-time homebuyers and to all buyers of newly built homes. Previously the 30-year option was much more restricted.

Source: Department of Finance Canada news release, September 2024.

Minimum down payment by purchase price

Canada uses a tiered minimum down payment rule:

• Under $500,000 → 5% minimum on the full price
• $500,000 to under $1,500,000 → 5% on the first $500,000 + 10% on the portion above
• $1,500,000 and above → 20% minimum (no insured mortgage available)

Worked example: an $850,000 home requires (0.05 × $500,000) + (0.10 × $350,000) = $60,000, which is approximately 7.06% of the purchase price.

Minimum down payment rules

The federal minimum down payment rules (above) determine the floor — the absolute minimum a lender will accept. ClearKey's Down Payment Planner calculates this automatically based on the home price you enter.

For investor properties and second homes, the rules are different — non-owner-occupied properties typically require a minimum 20% down payment regardless of price. Single-unit second homes that are owner-occupied (like a cottage you'll personally live in part-time) can sometimes qualify for the standard tiered rule, but underwriters scrutinize these closely.

Down payment sources matter too. Lenders verify that the funds came from one of:

• Personal savings (90 days of bank statements typically required)
• RRSP withdrawal under the Home Buyers' Plan (up to $60,000, raised in 2024)
• FHSA (First Home Savings Account) — up to $40,000 lifetime contribution room
• Gifted from immediate family (a signed gift letter is required)
• Sale of an existing property

A "non-traditional" down payment — borrowed against a credit line or from a non-immediate-family source — triggers a higher CMHC premium (4.50% vs 4.00% in the highest LTV bracket).

Ontario and Toronto land transfer tax

Land transfer tax is a one-time provincial (and in Toronto, municipal) tax paid at closing. It is the largest single line item in most Ontario closing cost calculations.

Ontario provincial LTT (applies to all Ontario purchases)

The provincial rate is tiered:

• 0.5% on the first $55,000
• 1.0% on the portion from $55,001 to $250,000
• 1.5% on the portion from $250,001 to $400,000
• 2.0% on the portion from $400,001 to $2,000,000
• 2.5% on the portion above $2,000,000 (single-family residential only)

Toronto Municipal LTT (applies only inside the City of Toronto)

If the property is within Toronto's city boundaries, the buyer pays a second land transfer tax in addition to the provincial one. As of January 2024 the Toronto MLTT rates are tiered up to a top marginal rate of 7.5% on the portion above $20,000,000, with the most relevant brackets for residential buyers being 1.0% – 3.0% in the lower price ranges and 3.5% – 4.0% on portions over $2,000,000.

Properties in surrounding municipalities — Mississauga, Brampton, Markham, Vaughan, Richmond Hill, Oakville, Burlington, Pickering — pay the Ontario LTT only, with no municipal layer.

First-time buyer rebates

Ontario provides a refund of up to $4,000 on the provincial LTT for qualifying first-time buyers (which fully covers the LTT on a home up to about $368,000 and partially offsets it above that). Toronto provides a separate municipal refund of up to $4,475. To qualify, you must be a Canadian citizen or permanent resident, at least 18, never have owned a home anywhere in the world, and intend to live in the home as your principal residence within 9 months of closing.

Source: Ontario Ministry of Finance — Land Transfer Tax; City of Toronto — Municipal Land Transfer Tax.

Mortgage penalty calculations

If you break a closed mortgage before the term ends, you pay a prepayment penalty. The penalty is the greater of two amounts: the Interest Rate Differential (IRD) or 3 months' interest. For variable-rate mortgages and most open mortgages, only the 3-month interest formula applies.

3-month interest

Interest Rate Differential (IRD)

The IRD is the difference between your contract rate and the lender's posted rate for a term roughly equal to the time remaining on your mortgage, applied to your remaining balance for the months remaining. The catch: Big 6 banks calculate IRD using posted rates (much higher than what was actually negotiated), which inflates the penalty significantly. Monoline lenders typically use the discount you originally received, which produces materially smaller penalties.

For a $500,000 mortgage with 30 months remaining at 4.29%, with a comparison posted rate of 6.79%, a Big 6 IRD penalty could be approximately $31,250 — versus roughly $5,360 in 3-month interest. This is why penalty math matters before refinancing.

Rate data sources and refresh cadence

ClearKey shows two distinct kinds of rate data, and they come from different places.

Bank of Canada data — fully automated

The overnight rate, prime rate calculation, last announcement date, next announcement date, and the rate-history chart on the Rate Tracker tab all come from the Bank of Canada Valet API, specifically the IROSGP series (Overnight Money Market Financing Rate). A scheduled function on our server fetches the latest data daily at 14:00 UTC — shortly after the BoC's typical 9:45 ET announcement window — and stores it in a key-value cache. Every time you load the Rate Tracker tab, it reads from this cache. Big-bank prime is calculated as overnight + 2.20%, the standard convention since 2015. If a Bank of Canada decision changes the rate, our data reflects that change within hours.

Lender-specific rates — not published by ClearKey

ClearKey does not publish a lender rate table. We made this choice deliberately. Rate tables go stale between updates, the rate you're actually quoted depends on factors no static table can capture (your credit profile, property type, amortization, lender promotions), and aggregators like Ratehub already do this work with broker partnerships we don't have. Instead, the Rate Tracker tab links directly to each Big 6 bank's official rate page, plus the FSRA public registry of licensed Ontario brokers.

Calculator default rates — illustrative only

Each calculator has a "Mortgage Rate" input that ships with a default value (typically around 4.29%). This default is an illustrative starting point, not a live lender quote and not personalized to your file. It exists so you can run a quick scenario without hunting for a number first. For an accurate calculation, replace it with the rate you've actually been quoted by a lender or broker.

Neighbourhood and city benchmark prices

The "What Would It Take" calculator uses approximate benchmark prices for major Ontario and Canadian metros and GTA neighbourhoods to populate its dropdown. These are rounded illustrative figures based on recent sales activity reported by:

• Toronto Regional Real Estate Board (TRREB) Market Watch — for GTA averages and benchmarks
• CREA national housing statistics — for cross-Canada context
• Local real estate boards (Ottawa, Hamilton, Kitchener-Waterloo, etc.) for regional benchmarks

These benchmarks are updated periodically but should not be treated as current listing prices. They exist so you can quickly stress-test "what kind of home does my income qualify me for" rather than typing in arbitrary prices. Always check current listings with a real estate professional or MLS for accurate market data on a specific home.

What ClearKey does not calculate

Honest disclosure of limitations is part of what makes a calculator trustworthy. ClearKey deliberately does not attempt to model the following, and you should not treat its outputs as covering them:

• Your specific lender's underwriting overlays. Every lender layers internal credit, employment, and property rules on top of the federal/CMHC rules. ClearKey calculates the federal/CMHC baseline. Real underwriting decisions can differ.
• Property tax accuracy at the property level. We use the user-entered annual tax. Actual tax is set by the municipality and based on MPAC assessment, not purchase price.
• Heating cost realism. The CMHC $150/month default is a regulatory placeholder, not your actual bill.
• HELOCs, second mortgages, or readvanceable products. Our calculators model conventional first mortgages only.
• Investment property qualification beyond the basics. Rental offset rules, DCR (debt coverage ratio) tests, and mixed-use properties involve lender-specific rules our calculators don't model.
• Self-employed income qualification beyond the simplified Income Qualifier. Stated income, T1 General income reduction, business-for-self programs, and add-backs are lender-specific and require a broker conversation.
• Construction draw mortgages. These have a completely different qualification process.
• Reverse mortgages, private mortgages, and B-lender products. These have different qualification math entirely.
• Bridge financing math. Computed separately by your lender at closing based on your existing sale and new purchase dates.

If your situation falls into any of these categories, a calculator (ours or anyone else's) is the wrong starting point. Talk to a licensed mortgage broker or your lender directly.

How and when we update this site

Mortgage rules and market conditions change frequently. Our update cadence:

• Bank of Canada data: automated, daily.
• Calculator default rates: manually updated when they drift meaningfully from market — typically every few months.
• BoC announcement schedule: updated annually each December when the Bank publishes the next year's dates.
• CMHC premium tables, stress test floor, LTV thresholds: updated within days of any regulatory change.
• Land transfer tax brackets and rebate amounts: verified against the source on each substantive update.
• Benchmark prices: reviewed quarterly or after a major TRREB Market Watch release.

If you spot something that looks wrong, please email hello@clearkey.ca. We take corrections seriously and update the site quickly.