What Is a Mortgage Term in Canada?
A mortgage term in Canada is the length of time your mortgage contract stays in effect, including its interest rate and conditions. Terms range from a few months to five years or more, and when one ends you renew for another or pay off what is left.
The term is not the life of the loan. That longer stretch is the amortization, often 25 or 30 years, which means most owners go through several terms before the mortgage is gone. Each one is its own contract.
According to the Financial Consumer Agency of Canada, most Canadian mortgage holders have a term of five years or less, which it classes as short-term. Anything longer than five years is a long-term mortgage. Seven and ten year terms exist at some lenders, though they may only come with a fixed rate.
How term length affects you
The term sets how long your rate arrangement lasts, whether you chose a fixed or variable rate. A shorter term brings you back to the market sooner. That is welcome if rates have fallen. If they have climbed, the new payment will be higher. A longer term holds the same conditions in place for more years, so payments are easier to predict.
Flexibility is the other consideration. Leaving a contract before the term ends, because you sell or refinance, usually triggers a prepayment penalty, and it can run to thousands of dollars. Someone who expects to move within a couple of years may find a shorter term fits better than a five-year one for that reason.
What happens when a mortgage term ends?
When a mortgage term ends, the remaining balance comes due, and in practice most borrowers renew for a new term. Federally regulated lenders such as banks must send a renewal statement at least 21 days before the existing term ends. You are not obliged to stay with that lender. The end of a term is a point when you can move to another lender, pick a different term length or pay down a lump sum without a prepayment penalty.
Related reading: What Is a Mortgage Renewal and Your Options in Ontario?, Open vs Closed Mortgage in Canada: The Difference and What Is Mortgage Amortization and How Does It Work in Canada?.
