Budgeting for your mortgage is one of the most important parts of buying a home. You’re locked into paying a monthly sum that will likely vary over the course of your loan.
While lenders are willing to amortize your mortgage over 25 or even 30 years, the amount paid in interest is quite substantial, especially in the first few years of your mortgage term. The interest you’re paying is going to depend primarily on your lending rate and as the interest rate set by the Bank of Canada increases, so will the amount of interest you will have to pay on your mortgage when you renew or if you have a variable rate.
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So, if you were to take out a mortgage today, how much will you pay in interest on top of your principal? To find out, we reviewed mortgage costs in five major cities across Canada and analyzed how much a homeowner would pay for an average priced home, assuming a 6.01% interest rate throughout the term, and broke that down to find out how much interest would be paid over a 25-year term.
How Much Interest Are You Paying?
The first thing to note is how much the interest payments decrease. Fortunately, the amount of interest you pay is not fixed like the rate is. It’s based on the amount of money outstanding on your mortgage. So as you pay it off and the owed total decreases, the amount of interest you pay decreases as well. That’s why on a home at the average national price, the interest on the mortgage payments in the last year is less than $350 – a homeowner will only pay interest on the very little that they still owe.
In the final years, it’s only a few dollars of difference, but depending on where you buy, the difference in interest on your mortgage could vary by thousands of dollars from city to city. However, the first few years are when mortgage owners pay little towards their principal compared to the amount spent on interest. This means making a substantial dent in the amount owing will take time so your interest payments can go down. Looking at the breakdown of the national average, interest payments only decreased by $224 between years one and five.
In the more expensive cities, homeowners will pay more interest. The home prices are higher here – in Toronto, the current average price is $1,171,300 and in Vancouver, it’s $1,203,000 – so you’ll be paying out a higher mortgage, and with a higher mortgage comes greater interest. For a 25-year mortgage in Toronto at the current average price, a homeowner will pay $856,953 towards interest over the lifespan of their mortgage, while in Vancouver the interest is an extra $872,071.
Halifax, as the most affordable city we looked at, has the lowest average housing price, at $528,400. The interest on a mortgage for the current average price in the city would come to $471,566, with final payments of slightly over $300 in the 25th year of repayment.
More questions about mortgage payments and interest? We’re here to help! Give us a call today to speak to a real estate agent in your area.
Last updated on October 26, 2023 to correct a miscalculation.
