Products and terms
Term
How long your current mortgage contract and rate last, usually 1 to 5 years, which is different from the amortization.
The term is the length of the contract. The amortization is the length of the debt. A typical Canadian mortgage is a 5-year term inside a 25-year amortization, so you'll renew about 4 more times before the mortgage is paid off.
Choose the term length on purpose. A shorter term lets you reprice sooner without a penalty, but you renew into an unknown market more often. A longer term gives you certainty and costs more to get out of.
The rate rarely decides it. What matters more is how likely you are to break the mortgage before the term ends, through a sale, a separation, a relocation or a refinance. Roughly 6 in 10 Canadian mortgages are broken or materially changed before a 5-year term is up.
On a term longer than 5 years, section 10 of the federal Interest Act caps the prepayment charge at 3 months of interest once 5 years have passed.
Related terms
Amortization
The total time it would take to pay your mortgage down to zero at your current payment, usually 25 or 30 years in Canada.
Renewal
The end of a mortgage term, when you sign a new one with your current lender, switch to a new lender, or pay the mortgage off.
Prepayment penalty
The charge for paying off a closed mortgage early: 3 months of interest on a variable, or the greater of that and the IRD on a fixed.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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