A Guide to Mortgage Terms in Canada
Jamie David, Sr. Director of Marketing and Mortgages
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 to Today
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 pre-payment penalty fee (explained in more detail below). According to TD Canada Trust, seven out of ten repeat home buyers moved sooner than they thought they would (source), 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.
Compare today's lowest mortgage rates
Saving on your home purchase starts with the lowest rates. Let Ratehub.caca help you compare lenders.
Qualifying for a mortgage
As of Jan. 1, 2018, all federally regulated mortgages in Canada will be subject to a stress test, which was introduced by the Office of the Superintendent of Financial Institutions (OSFI), the country’s federal banking regulator. Prior to this year, only those with a high ratio mortgage (a mortgage with a down payment of less than 20%) were subject to the stress test.
According to the new rules, home buyers must qualify at a higher interest rate than the one given to them by their mortgage provider. The new qualification rate is the greater of the Bank of Canada’s posted rate (currently 5.34%) or plus two percentage points to the mortgage rate offered by your lender (your contracted rate).
For example: Say you’ve been offered a mortgage rate of 3.09% by your mortgage broker or bank.
While that would be the rate you have to pay, the rate you would actually have to qualify at (and hypothetically be required to afford) would be 5.34%.
You can learn more about How to Qualify for a Mortgage through our blog.
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 pre-payment penalty fee. Learn more about pre-payment 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.
Whether you need a mortgage, credit card, savings account, or insurance coverage, we help you find and compare the best financial products for your specific needs.
When it comes to mortgages, Ratehub.ca is more than just a place to research and compare the best rates. Our goal is to give Canadians the best mortgage experience from online search to close. This means offering Canadians the mortgage tools, information and articles to educate themselves, allowing them to get personalized rate quotes from multiple lenders to compare rates instantly, and providing them with the best online application and offline customer service to close their mortgage all in one place.
Ratehub.ca has been named Canada's Mortgage Brokerage of the Year for four years straight (2018-2021). With over 12 years of mortgage experience, and over $11 billion in mortgages funded, we deliver you the best mortgage experience in Canada.
How does Ratehub.ca make money?
Financial institutions pay us for connecting them with customers. This could be through advertisements, or when someone applies or is approved for a product. However, not all products we list are tied to compensation for us. Our industry-leading education centres and calculators are available 24/7, free of charge, and with no obligation to purchase. To learn more, visit our About us page.
How are CanWise Financial and Ratehub.ca connected?
We own and operate a mortgage brokerage, Ratehub.ca (formerly known as CanWise Financial), and are compensated for mortgages funded through our brokerage. Ratehub Inc. o/a Ratehub.ca & CanWise is a licensed mortgage brokerage and CMHC-approved lender. When comparing mortgage rates on Ratehub.ca, you’ll see rates from a number of lenders, including CanWise. All products are sorted according to the rates available to you and the selection criteria you’ve shared with us. Both Ratehub.ca and CanWise are owned and operated by Ratehub Inc.
We’re proud of our Ratehub.ca mortgage brokerage, which offers our users great rates, trusted advice and an award-winning team of mortgage experts. Read any of our 6,700 five-star Google and Facebook reviews and you’ll see what we mean.