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You need to choose an amortization period when you apply for a mortgage. Learn more in the MoneySense Glossary.
A mortgage’s amortization period is the estimated time required to repay the entire amount borrowed for a mortgage, based on the interest rate and payment schedule. Canadian mortgages typically have amortization periods of 25 years.
Because mortgage contracts expire after a set period, called the “mortgage term,” most mortgages are renegotiated many times before the home is fully paid for. Mortgage terms can be a few months or many years, with five years being the most common. At the end of each term, you can try to negotiate a better interest rate or other items in the contract with your mortgage provider or another one. Because of these potential changes, the actual time it takes to pay off the mortgage may be longer or shorter than the original amortization period.
Example: “If you have a $300,000 mortgage with a 4% interest rate, choosing a 20-year amortization period will lower your payments, but ultimately you will pay more than double the amount of interest you would have paid with a 10-year amortization: $135,057 instead of $63,919.”
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