Amortization Schedule vs. Mortgage Term

Jan 31, 2023 By Susan Kelly

Mortgage borrowers frequently need to understand the distinction between the duration of their loan and the time it takes to pay off their loan, known as the amortization period. Here's a quick explanation:

The term of your mortgage is the time left on your existing contract before you must renew; the amortization period is the whole lifetime of your mortgage. The usual length of a mortgage in Canada is 25 years.

What Is An Amortization Schedule?

The length of time during which a mortgage loan may be paid off with standard monthly payments at a fixed interest rate is called the amortization period. Smaller amounts are made over a longer amortization term, but the overall cost of the mortgage depends on the interest rate.

However, the overall mortgage cost can be reduced by reducing the amortization duration. This is because the total interest paid over time will be less despite the larger monthly payments.

Why Do We Need An Amortization Plan?

An amortization schedule for a loan is a table that details the interest and principal components of each loan payment throughout the life of the loan. Borrowers are aided in keeping tabs on their financial obligations by the timetable.

The amortization schedule and associated charges are typically reviewed once each year and adjusted accordingly. Alternate payment plans are possible. Weekly, biweekly, and monthly are the most usual intervals.

Making early principal payments might save you tens of thousands of dollars in interest over the life of the loan. Because of this, it's the most cost-effective option. You should discuss this option with your mortgage consultant if your short-term budget allows it.

What Does Mortgage Term Mean?

The mortgage term is the binding legal agreement between the lender and borrower that specifies the loan's interest rate and other terms and conditions. Although five years is the most common period, mortgages often range from six months to ten years.

The interest rate on a mortgage will be reduced if the loan is paid off faster. An extension of the mortgage's term is a renegotiation of the loan's terms depending on the remaining principal. If you still owe money when your mortgage's term ends, you'll need to renew it.

Here, you may revisit the terms and conditions you previously agreed upon with the lender, including the interest rate, payment schedule, and term extension.

Mortgage Repayment and Amortization: How Do They Fit Together?

For most mortgages, the only method to escape the conditions is to either pay off the loan(s) quickly or select a brief amortization period. In any case, the amount of remaining mortgage amortization will decrease at the end of each mortgage term.

It's important to remember that the terms of your mortgage don't need to be kept after each renewal. If you stick with your existing service provider because it's convenient, you may pay more interest. Remember that you may always negotiate a lower interest rate with your current or new lender throughout the renewal process.

What's The Most Extended Amortization Period?

CMHC is the go-to for default insurance for mortgages and other home loans in Canada. All mortgage-related rules and guidelines are established there. The maximum amortization period for a CMHC-insured home is 25 years.

More than 20% of the loan amount must be paid in the first installment if the repayment period is to be extended beyond that. For purchases over $1,000,000, this will not be the case. The 25-year amortization period is the most frequent in the mortgage industry because of its standardization.

What Is The Most Common Length For A Mortgage?

The standard mortgage term length is five years. Since the duration of the contract is negotiable, the lender and the consumer can decide how much risk they are willing to take by selecting a period between one and ten years.

Most mortgage lenders like Canada's Big Six banks use this standard mortgage phrase. The instability of the interest rate is the primary consideration in settling on this rigid medium-term duration.


Repaying a mortgage is a significant milestone on the path to financial independence because of the equity built up in one's property. After all payments toward the mortgage have been made, you will own the home outright. Compared to renting, this has many more advantages. After completing the required amortization payments, the borrower will be granted permanent stability in homeownership.

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