Amortization Period: How It Affects Mortgage Cost

An amortization period is the length of time it should take to pay off your mortgage.

It’s easy to confuse amortization period with another time-based factor: the mortgage term, which is the length of time you are locked into a mortgage contract.

Both are important components of a mortgage. These two factors determine when you’ll be up for mortgage renewal, and when you’ll become mortgage-free.

How to choose an amortization period

An amortization period is the amount of time needed to pay off a mortgage in full.

The most common amortization period in Canada is 25 years, but that’s not the only option. There are tradeoffs to consider when choosing an amortization period that works best for you. If you’re considering multiple periods, consider how the two stack up:

Shorter amortization period	Longer amortization period
Higher monthly payments.	Lower monthly payments.
You’ll pay less total interest over the life of the loan.	You’ll pay more total interest over the life of the loan.
You’ll be mortgage free sooner.	It’ll take longer to pay off your mortgage.
You may have less borrowing power.	You may have more borrowing power.
You can get a mortgage with less than 20% down (also called an insured mortgage) if your amortization period is 25 years or less. Beginning on December 14, 2024, first-time home buyers can get insured mortgages with 30-year amortization periods, as can anyone buying a new build.	You’ll need a down payment of at least 20% if you want an amortization period longer than 25 years. Beginning on December 14, 2024, first-time home buyers can get insured mortgages with 30-year amortization periods, as can anyone buying a new build.

Best Mortgage Rates in Canada

Compare Canada’s top mortgage lenders and brokers side-by-side and find out the best mortgage rates that will meet your need

Explore Now

This is what an amortization schedule can tell you

An amortization schedule or table details every projected payment you will make over the life of your mortgage.

On an amortization schedule, you will find the following:

Interest.
Principal.
Extra Payments.
The total amount paid (per year and over the whole loan).
Remaining balance.

Here’s what one might look like:

Example of the payments breakdown provided in a typical amortization schedule.

The schedule shows how much of each payment will go toward the principal and how much will go toward interest.

You’ll notice that each payment allocates more to the outstanding principal than the previous payment. That’s because each time you make a payment you lower the outstanding principal, which means your loan accrues less interest the following month. Note that if you have a variable-rate mortgage, this may not be the case; your interest payments increase if rates increase.

As you pay down the principal, you gain equity in your home.

» TRY OUR AMORTIZATION CALCULATOR: See how much you’ll pay over the life of your loan.

How to choose a mortgage term

A mortgage term is the length of time a mortgage contract is in effect.

A term lasts between six months and 10 years. Historically, shorter terms have had lower interest rates than longer terms, but this is not always the case.

During the term, you are locked into all the conditions outlined in your mortgage contract, including the fixed or variable interest rate.

At the end of the term, you renew your mortgage. You can renew with your existing lender or find a new lender. Renewal is a time to reassess your needs; the terms of your last mortgage may not be the best fit for your next mortgage. Your mortgage rate will also likely change. The rate offers you receive at renewal are based on market rates, which fluctuate over time. The rate offers you receive are also based on your current financial situation, including your credit score, which may have changed for better or worse since your last mortgage.

Nerdy tip: The surest way to receive the lowest rates at renewal is to get offers from multiple lenders. You can look into the best mortgage rates on your own, or you can work with a mortgage broker. Even if you end up renewing with the same lender, getting other offers puts you in a much better position to negotiate a better rate than the initial renewal offer your current lender sent.

Shorter-term mortgages (of five years or less) can come with fixed or variable interest rates. Longer-term mortgages are usually restricted to fixed rates.

If you opt for a fixed-rate mortgage and need to break your contract before the term is over — say, because you decide to sell the property — you may have to pay substantial prepayment penalties unless you have an open mortgage.

The best mortgage term for you depends on your current financial situation, how long you expect to stay in your home, your projected financial future, as well as possible interest-rate fluctuations and changes in the economy at large.

How mortgage terms and amortization periods work together

The typical homeowner has multiple mortgage terms over the life of their mortgage. At the end of each term, your remaining amortization will be shorter because you have spent the intervening months or years paying down the principal.

It’s important to strike a balance that fits your financial situation and addresses both your short-term and long-term needs. Selecting a mortgage can be a thorny and precarious thicket to navigate, so consult your mortgage broker if you have any specific questions.