What happens if I pay off my mortgage with one lump deposit?

Fine, as long as you understand what it means to speculate in real estate... and the considerations for buy vs. rent. Search the archives of this group to see plenty of other discussions on those topics.

Unless there is something very different about Canadian mortgages, interest is normally "pay as you go", in other words each monthly payment includes the total amount of interest accrued during the month on the principal balance. Therefore, to answer the question in your subject line, in the month you pay off the mortgage you only pay interest for those days of the month up to the day you paid it off. For example, if you close the sale on April 15th, you would pay 15 day's worth, or half a month's interest, as part of the the final payoff, assuming all your prior monthly payments had been made as agreed.

Two additional items:

If your loan has "negative amortization", which means you are not paying enough each month to cover accrued interest, and the remainder is being added to the principal balance, then the above is still true. But the principal balance you have to pay off might actually be bigger than the amount you originally borrowed, or at least not much smaller, due to the negative amortization.

Some loans include a pre-payment penalty, which I recommend you try to avoid. This would require you paying a surcharge of some kind for the privilege of paying the loan off early and depriving the bank of its expected long term income stream.

-Mark Bole

The easiest way to find out how much you need to pay off your mortgage is to call the company that services it and ask for the payoff amount for a certain date.

Dave

BTW, there are mortgage calculators aplenty on the Internet, or from the places you are shopping. For the loan parameters you give above, your monthly payment would normally be 1609 dollars.

After five years of these payments, your loan balance (approx. payoff amount) would be 230,000, dollars give or take a few.

-Mark Bole

Thanks! I'll check with the bank about any surcharges.

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You mean the worldwide credit crunch is not affecting Toronto real estate prices? More power to you then.

I am not Canadian, but I would think that that would depends on the terms of your loan. Is there a prepayment penalty?

But be sure to choose a calculator tailored for your country. This is especially important for Canadians, because the mortgage rate is said to be "compounded semi-annually". What that means in practical terms is: instead of computing the monthly interest rate as 5.74%/12, it is (1 + 0.0574/2)^(1/6)-1 , where "^" means "to the power of".

I don't know why Canadians bother with this complication. It makes a relatively small difference. For the loan above, the monthly rate is about 0.6 basis points (0.006%) less; the monthly payment is about $10 less; and if the loan goes to term, the total interest paid is about $3100 (1.4%) less than about $226,700 in interest.

For Canadians, the monthly payment would be about $1599, and the balance after 5 years would be about $229,100 instead of $229,400.

PS: Canadians are the only ones that I know of that do not use "usual" mortgage math (i.e. the periodic rate is the annual rate divided by the number of periods per year). I have seen two different methods used for UK mortgages -- the "usual" one, and one in which the periodic payment is based on annual amortization divided by the number of periods per year. I don't know how prevalent the latter is in the UK.