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Amortization
Amortization is the total length of time it takes to pay off your mortgage in full, commonly 25 years in Canada. It is set when you arrange the mortgage and shapes both your regular payment and the total interest you pay. A longer amortization period lowers each payment but results in more interest overall.
Amortization Quick Facts
- Amortization is the full time needed to repay your mortgage
- Most Canadian amortizations run 25 years, with 30 available to some buyers
- A longer amortization lowers payments but raises total interest
- It is not the same as your mortgage term
- Prepayments can shorten it and cut interest
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What Is Amortization
Amortization is the estimated time needed to repay your entire mortgage, based on your current rate and payment schedule. In Canada, it is most often 25 years, though 30-year amortizations are available to some buyers. It differs from your mortgage term, which is the length of your current contract, usually five years or less.
You will likely renew your mortgage several times over the life of a single amortization. Each payment chips away at the balance until, at the end of the amortization period, the loan is fully paid.
Why Amortization Matters for Mortgages
The amortization you choose drives affordability for you and risk for the lender. According to FCAC, the amortization period is the time it takes to pay your mortgage. Stretch it out, and each payment drops, which can help you qualify; shorten it, and you build equity faster and pay less interest.
Lenders also use amortization to determine your maximum borrowing amount. You can weigh the trade-offs in nesto’s guide to the amortization period, then choose the shortest term your budget can carry.
Common Amortization Periods in Canada
Your options depend on your down payment and the type of purchase.
Shorter Amortization. Periods like 15 or 20 years increase each payment but reduce the total interest and help build equity sooner.
Standard 25-Year Amortization. The most common choice in Canada, and the longest available on most insured mortgages.
Longer 30-Year Amortization. Open to all uninsured prime mortgages and insured mortgages for first-time buyers and buyers of newly built homes. Longer amortizations lower payments but add interest over the extra years.
As an example, on a $500,000 mortgage, choosing a 30-year amortization instead of 25 lowers each payment, but it can add tens of thousands of dollars in interest over the life of the loan. Many buyers take the shortest amortization they can comfortably afford to save on interest costs.
Common Mistakes and Misunderstandings About Amortization
- Confusing the amortization with the mortgage term
- Assuming a longer amortization saves money rather than just lowering payments
- Forgetting that 30-year amortizations have eligibility limits in Canada
- Overlooking how prepayments can shorten the amortization
- Treating the amortization on a mortgage statement as fixed when prepayments can reduce it
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Frequently Asked Questions About Amortization
What is the difference between amortization and a mortgage term?
Amortization is the full time required to repay the mortgage, often 25 years. The mortgage term is the length of your current contract, usually five years or less, after which you renew. You select several terms over a single amortization.
What is the maximum amortization in Canada?
All prime mortgages in Canada allow up to 30-year amortizations. For most insured mortgages, the maximum amortization is 25 years, except for first-time buyers and buyers of newly built homes, who may qualify for a 30-year amortization.
Does a longer amortization save money?
No. A longer amortization lowers each payment but increases the total interest you pay, because you carry the balance for more years. It improves monthly cash flow, not the overall cost.
Can I shorten my amortization later?
Yes. Increasing your payment, switching to an accelerated payment schedule, or making lump-sum prepayments all shorten your amortization and reduce total interest, within the limits of your contract.