1. Buying
  2. Choosing a mortgage rate

Mortgage Term

A mortgage term is the length of time you are committed to a mortgage rate, lender and conditions set out by that lender. A mortgage term can vary in length, from 6 months to 10 years, with the most popular term in Canada being 5 years.

When your mortgage term expires, you must renew your mortgage on the remaining principal that is owed. Most Canadian homeowners will renew for a new term multiple times through their entire amortization period.


Historical Fixed Mortgage Rates by Term From 2006 - Today


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How to Choose a Mortgage Term

Choosing the right mortgage term depends on your financial situation, your short-term and long-term goals, and your tolerance for risk. A longer term can help you lock in a good interest rate for a lengthier period of time, whereas a shorter term can give you more flexibility but offers less protection should interest rates rise in the near future.

It’s important to choose the mortgage term that suits your personal circumstances. For example, if you think there’s a possibility that you might have to sell your home within the next few years, choose a shorter mortgage term so you can avoid having to pay a prepayment penalty fee (explained in more detail below). According to TD Canada Trust, seven out of ten repeat homebuyers moved sooner than they thought they would1, so the chances of you having to break your mortgage term early are higher than you’d think.

Want to see what other Canadian homeowners are choosing? We prepared a few case studies to show you how different mortgage terms suit different personal circumstances.

One thing to keep in mind is that the mortgage term you choose will directly affect your interest rate. Historically, shorter terms have had lower interest rates. The longer the term, the more protected you are from interest rate fluctuations, and there is a premium you must pay your lender for that. The chart below provides a good visual:


Popularity of Mortgage Terms by Age Group

Term Length Age Group
18-34 35-54 55+ ALL AGES
1 YR 5% 7% 6% 6%
2-4 YRS 27% 18% 12% 20%
5 YRS 66% 65% 69% 66%
6-10 YRS 3% 9% 10% 7%
11+ YRS 0% 0% 2% 1%

As the chart show, the majority of Canadians opt for a 5-year term. The next most popular terms across all age groups is between 2 and 4 years.


Qualifying for a Mortgage

If you qualify for a mortgage with a lender, the mortgage term and rate you choose will affect the overall amount you can borrow. On April 19th, 2010, Finance Minister Jim Flaherty introduced a new rule stating that any homebuyer who chooses a term between 1 and 4 years, or any variable rate mortgage, must still qualify for their mortgage at the 5-year posted rate, in order to be approved.

For example, if your lender was offering a 3-year fixed term at 3.09% but their 5-year fixed posted rate was 5.34%, you would need to prove that you could afford the mortgage payments for the higher 5-year posted rate before they could approve you for the 3-year term. The difference between the two rates may seem small but can drastically change the monthly mortgage payments and, therefore, the buyers’ affordability.

Lenders determine what you can afford to borrow by using two formulas: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. You can learn more about debt service ratios in our Education Centre.


Breaking Your Mortgage Term

Sometimes personal circumstances change and you find yourself in a situation where you need to break your mortgage term early. There are a number of reasons you could have to break your mortgage term, including relocation, a refinance or another life event. If you break your mortgage term early, you may incur a significant prepayment penalty fee. Learn more about prepayment penalties on our cost of refinancing page.


Alternatives to Breaking Your Mortgage Term

Instead of breaking your mortgage term and incurring the associated penalty, you may be able to port your mortgage to your next home or make have it assumed by the buyer of your home. Learn more about porting and assuming your mortgage in our education centre.


References and Notes

  1. http://www.smrmediaroom.ca/TDRepeatBuyers.html