Key Points
- Amortization = the total life of your mortgage (e.g., 25 years)
- Term = the length of your current contract (e.g., 5 years)
- Longer amortization = lower payments but more total interest
- Shorter amortization = higher payments but faster equity building
- You renegotiate your term multiple times during your amortization
This is one of the most common points of confusion I encounter with new clients. Amortization and mortgage term are very different things — and understanding both changes how you think about your mortgage.
Amortization Period
Your amortization period is the total length of time it would take to pay off your entire mortgage if nothing changed — your rate, your payments, everything stayed the same. In Canada, the maximum amortization for insured mortgages (under 20% down) is 30 years. Uninsured mortgages can sometimes go to 35 years with certain lenders.
The longer your amortization, the lower your monthly payment — but the more total interest you pay over the life of the mortgage. A 25-year amortization vs. a 30-year amortization on a $600K mortgage at 5% is a difference of roughly $350/month — but you'd pay approximately $100,000 more in total interest over the 30 years.
Mortgage Term
Your mortgage term is the length of your current contract with your lender — the period for which your interest rate and conditions are set. The most common term in Canada is 5 years, but terms can range from 6 months to 10 years.
At the end of your term, your mortgage is up for renewal — you renegotiate a new rate and term for the remaining amortization. A 25-year amortization with 5-year terms means you'd renew approximately 5 times over the life of your mortgage.
Why Both Matter
Your amortization determines your payment size and total interest cost. Your term determines your rate stability and when you can renegotiate. Choosing the right combination depends on your cash flow, risk tolerance, and financial goals. I'll help you figure out the right setup for your specific situation.
Have a specific question about your situation? Every mortgage is unique. This article covers the general principles, but your circumstances might change the picture. Reach out and I'll give you a direct, honest answer.