Amortization vs Term: What a 30-Year Mortgage Costs

Amortization period vs term: the short answer

The term is the length of your current mortgage contract. According to the Financial Consumer Agency of Canada (FCAC), terms range from a few months to 5 years or more. When the term ends, you renew, refinance, or pay off the balance.

The amortization period is the time it would take to repay the whole loan if your payment stayed the same. It is an estimate, because it assumes today's rate stays in place until the end. Most borrowers go through several terms before the amortization runs out.

Here is a simple way to picture it. With a 5-year term and a 25-year amortization, you sign about five contracts over the life of the loan. Each renewal can bring a new rate, a new payment, or a new lender.

What the term controls

• Interest rate: fixed or variable, set for the length of the term.
• Prepayment rules: how much extra you can pay each year without a penalty.
• Penalty to break: the cost of ending the contract before its end date.
• Renewal date: the moment you can shop your mortgage without a penalty.

What the amortization controls

• Regular payment: a longer amortization spreads the principal over more payments, so each one is smaller.
• Total interest: you owe the principal for longer, so you pay interest for longer.
• Qualification: a lower payment can help your debt ratios when the lender reviews your file.

Who can get a 30-year amortization

The rules depend on your down payment. When you put down less than 20%, your mortgage must be insured against default, and federal rules set the maximum amortization. When you put down 20% or more, your lender sets the maximum.

Since December 15, 2024, an insured mortgage can be amortized over 30 years if you are a first-time buyer, if you are buying a newly built home, or both. In every other insured case, the maximum stays at 25 years. The Department of Finance announced the change in its September 2024 mortgage reforms, which apply to insurance applications that lenders submit on or after that date.

Who counts as a first-time buyer

For the 30-year rule, you are a first-time buyer if one of these applies to you:

• you have never purchased a home before;
• in the last 4 years, you have not lived, as your principal residence, in a home owned by you or your current spouse or common-law partner;
• you recently went through the breakdown of a marriage or common-law partnership.

A newly constructed home is one that has never been occupied as a residence. A new condo with an interim occupancy period still qualifies. In both cases, you or a close relative must live in the home, and its price must be under $1.5 million, the current cap for insured mortgages.

Uninsured mortgages

With 20% down or more, the FCAC says your lender sets the maximum amortization period. Policies vary from one lender to the next, so ask for the maximum in writing when you compare offers. A mortgage broker can tell you which lenders accept a longer amortization on a conventional mortgage.

25 vs 30 years: the numbers

To show the trade-off, we modelled a first-time buyer who purchases a $500,000 home with a 10% down payment of $50,000. The $450,000 loan must be insured. At a loan-to-value ratio of 90%, the CMHC premium is 3.10% of the loan for a 25-year amortization, plus a 0.20% surcharge when the amortization goes beyond 25 years, according to the CMHC premium schedule as of October 18, 2026. The premium is added to the loan.

We used an illustrative fixed rate of 4.50% for the whole amortization, compounded semi-annually, as is usual for fixed-rate mortgages in Canada. Your rate will change at each renewal, so read these figures as a comparison, not a forecast.

The 30-year option lowers the monthly payment by about $224. That is real breathing room in a first budget. The price is $72,534 more in interest over the life of the loan, if the rate never changed, and slower equity: after the first 5-year term, you still owe $16,149 more than with 25 years.

You can test your own numbers with our mortgage payment calculator, which offers both 25- and 30-year amortizations. A small gap with our table can come from the compounding method a calculator uses.

What the first term looks like

During the first 5 years, most of each payment goes to interest in both scenarios. That equity gap then carries into every term that follows:

• 25 years: $56,619 of principal repaid and $97,452 of interest paid.
• 30 years: $41,370 of principal repaid and $99,261 of interest paid.

Choosing your term

Your term is a separate decision from your amortization. A shorter term lets you renegotiate sooner, which helps if you expect rates to fall or plan to move. A longer term keeps your payment stable, but breaking it early can be expensive.

Three questions help you decide:

1. How long will you keep this home? If you might sell within a few years, a long closed term can trigger a prepayment penalty, unless you can port the mortgage to your next home.
2. How much payment change can you absorb? A longer fixed term protects your budget from rate increases during that period.
3. Fixed or variable? Our guide to fixed vs variable mortgages explains how each one behaves during a term.

What happens at renewal

At the end of each term, your lender sends a renewal offer. You can accept it, negotiate it, or move to another lender. The remaining amortization carries over: a 30-year amortization at purchase becomes 25 years remaining after a 5-year term.

Renewal is also a good moment to shorten your amortization, for example by raising your payment after a salary increase. Our mortgage renewal calculator shows how a new rate changes your payment, and our guide on negotiating your mortgage renewal covers how to get a better offer.

Paying faster without a new contract

A long amortization does not lock you into paying slowly. Most closed mortgages let you raise your regular payment or make a lump-sum payment each year without a penalty, within limits written in your contract. These prepayment privileges cut the principal directly, which shortens the real time to pay off the loan.

When a 30-year amortization makes sense

The longer option is a tool, not a default. It fits some situations and works against you in others.

Conclusion

The term and the amortization answer two different questions. The term is how long your deal lasts. The amortization is how long your debt lasts. Since December 15, 2024, first-time buyers and buyers of newly built homes can stretch an insured mortgage to 30 years, which lowers the payment but adds tens of thousands of dollars in interest. Pick the shortest amortization you can carry comfortably, then choose a term that matches your plans for the next few years.

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Frequently asked questions about amortization and term