Essential Mortgage Calculations: LTV, Payments and Down Payments

Mortgageprep.ca • Independent Level 1 study resources

Mortgage calculations become easier when you keep the units consistent and connect each number with its meaning. An exam-style scenario may contain a purchase price, a down payment, a proposed loan, an interest rate and an amortization period. Before calculating anything, identify which quantity the question actually asks for.

Loan-to-value (LTV)

LTV compares the mortgage principal with the relevant property value. The introductory formula is LTV = mortgage amount ÷ property value × 100. Example: a $560,000 mortgage against a $700,000 property produces 80% LTV. Divide 560,000 by 700,000 to get 0.8, then multiply by 100.

Watch the denominator. Some questions provide an appraisal, a purchase price and an offer. Underwriting rules may determine which value a lender uses. Do not automatically pick the largest number when the problem specifies another basis.

Mortgage principal from down payment

For a basic uninsured illustration, mortgage principal = purchase price − down payment, before any financed fees or premiums. If the property costs $620,000 and the buyer contributes $124,000, the initial principal is $496,000. The down payment proportion is 124,000 ÷ 620,000 = 20%; the corresponding LTV is 80%.

Real transactions may include insurance premiums, closing costs and eligibility requirements. Distinguish the simplified math problem from the complete lender calculation.

Interest, term and amortization

The mortgage term describes the period under a particular agreement, while amortization describes the projected schedule for paying off the loan. A five-year term may form part of a twenty-five-year amortization. Confusing the two leads to incorrect payment and interest conclusions.

Illustrative monthly payment

For a conventional fixed-rate Canadian illustration with nominal annual rate j compounded semi-annually, the effective monthly rate is r = (1 + j/2)^(1/6) − 1. For n monthly payments and principal P, the level payment is P × r ÷ (1 − (1+r)^(-n)). Different products may use different conventions, and the contractual terms always govern.

Use the interactive payment calculator to change the principal, interest rate and amortization. Notice how longer amortization typically lowers the scheduled payment while potentially increasing the total interest over the full period.

Check the answer before moving on

• Is the result a dollar amount or a percentage?
• Did you use the correct property value?
• Did you convert annual rate and years into the required payment periods?
• Does the answer move in the expected direction when principal or interest increases?

Good preparation includes method and interpretation. In the Level 1 study guide and practice course, link the maths to borrower qualification and mortgage suitability questions.