Mortgage Term

Term vs. amortization: two different clocks

Your mortgage runs on two clocks. The amortization period is the long one: the total runway to pay off the loan, usually 25 years. The mortgage term is the short one: the length of your current contract, most often 5 years. The term fixes your rate, your payment rules, and your prepayment privileges, but only until it expires. The amortization keeps ticking in the background across every term.

A borrower with a 25-year amortization and 5-year terms will sign at least five separate contracts before the mortgage is gone, each one at whatever rates the market offers at the time.

What happens when your term ends

At maturity you have four options. Renew with your current lender, usually by signing the renewal offer they send you. Renegotiate that offer, since the first rate a lender mails out is rarely their best. Switch to another lender offering a better rate or better conditions. Or pay off the balance entirely, penalty-free, since the contract has ended.

Renewal is a real decision point, not a formality. Lenders count on inertia, and borrowers who sign the first offer routinely leave money on the table. If you switch lenders or borrow more, you will need to qualify under the mortgage stress test: lenders must test your finances at the greater of your contract rate plus 2 percentage points or 5.25% (as of July 2026). A straight switch at renewal, with no new money and no change to the amortization, is generally exempt from re-testing (as of July 2026).

Canada vs. the United States: the 5-year difference

This is the feature that most surprises anyone comparing the two countries. In the United States, the standard product is a 30-year fixed mortgage: one rate, locked for the entire 30 years, no renewals ever. In Canada, rate guarantees are short. The typical borrower locks a rate for 5 years at a time and is re-exposed to market rates at every renewal.

The consequences cut both ways. When rates rise, Canadian borrowers face payment shock at renewal while American borrowers keep their old rate untouched. When rates fall, Canadians benefit automatically at the next renewal, while Americans must refinance, with fees, to capture the drop. The Canadian system trades long-term certainty for flexibility, and it makes the renewal date one of the most important dates in a Canadian homeowner's financial life.

Open vs. closed terms

A closed term restricts how much extra you can pay beyond your regular payments and prepayment privileges. In exchange, the rate is lower. An open term lets you prepay or pay off the mortgage at any time without penalty, but the rate is noticeably higher. Most Canadians choose closed terms; open terms mainly suit people expecting to sell or receive a large sum soon.

Breaking a term early

Ending a closed term before maturity, to sell, refinance, or chase a lower rate, usually triggers a prepayment penalty. For closed fixed-rate mortgages, it is typically the greater of three months' interest or the interest rate differential (IRD), a formula that can produce very large numbers when rates have fallen since you signed. Variable-rate mortgages typically charge three months' interest. Always get a payout quote from your lender before committing to a break.