It’s time to finally buy your first home, or perhaps you’re upgrading your home to make room for a bigger family. Either way, it’s time to decide which type of mortgage is right for you. There are many different specifics involved in deciding on a mortgage, and one of the important aspects is the length of the mortgage.

Your mortgage term length and amortization period will play a vital role in determining your interest rate and monthly payment, on top of dictating how long you’ll be making payments. It’s important to thoroughly consider all of your options before committing to a mortgage to ensure that you are taking on affordable monthly payments while saving the most amount of money possible.

Today, we’re going to examine all of the factors that must be considered before you land on a mortgage term length. We’ll discuss two often-confused terms, then dive into comparing the different lengths and how they can impact your finances when it comes to buying a new home.

Mortgage Term Lengths vs Amortization

Your mortgage term length is the agreed-upon length of time that you’ll be making payments with the specified interest rate and monthly payment amount. Mortgage terms can vary dramatically, ranging from a few months to over five years. Your mortgage term length impacts:

  • Type of interest rate available (fixed or variable) and the interest rate itself
  • Any penalties involved if you end your mortgage before the term is finished, which can include prepayment
  • When you’ll need to renew your mortgage agreement

Take note of that last point; you’ll need to continually renew your mortgage until the balance is paid in full. The total period that you have a mortgage is called the amortization period. The amortization period is a general estimate created based on the details of your current mortgage agreement.

Some homeowners opt for a longer amortization period to decrease their monthly payments. However, this option typically means that you’ll pay more in interest. Understanding your financial situation is vital to determining your mortgage term length to secure an ideal monthly payment.

The Benefits and Drawbacks of Popular Term Lengths

There are plenty of mortgage terms and amortization periods available, but most homeowners typically fall into a few specific categories. Below, we’ll go through these categories and help you decide which one will best suit you.

30-35 Year Amortizations

Mortgages with amortization periods beyond 30 years are not typically offered by mainstream lenders anymore. However, they are still available for interested borrowers.

The primary benefit of a mortgage with this term length is lower monthly payments. However, the trade-off is typically a higher interest rate. Combined with having more years to accrue, these longer mortgages cause homeowners to pay more than shorter mortgage terms lengths.

A secondary reason why many borrowers consider longer loans is because 35-year amortization lenders will typically allow you to:

  • Have a lower credit score than other lenders
  • Have a less favorable debt-to-income ratio
  • Claim more rental property than other lenders (if applicable)
  • Allow for more self-employed income (if applicable)

There’s one final important note about these mortgages: you need to have at least a 20% downpayment available, otherwise, you won’t be eligible for anything longer than 25 years.

25 Year Amortizations

A 25-year mortgage term is the most common option for homeowners in Toronto. Between 2015-2019, 25-year amortizations made up 58% of all mortgage term lengths. Most banks, credit unions, and other lenders in Canada will offer a 25-year amortization period, which is why it’s the most popular choice. It’s suitable for average borrowers who want a low monthly payment without the inflated interest rates available in 30 and 35-year terms.

It is still advisable to have a 20%+ downpayment when seeking a 25-year mortgage, or will need to purchase CMHC insurance. The specific type of insurance protects the lender from defaults and the cost is passed on to you. The fee is a percentage of the total loan, ranging from 0.6% to 4% depending on your downpayment. If possible, saving up at least 20% of your downpayment can avoid this cost and hassle entirely.

Below 24 Year Amortizations

While not as common as 25-year options, approximately 30% of borrowers have an amortization period below 24 years. Shorter amortization periods mean that borrowers will end up paying less overall for their homes, but their monthly payments will be much higher than longer loans. Shorter loans also benefit from lower interest rates.

This option is ideal for borrowers that can take on a higher monthly payment and want to own their home sooner rather than later. If you can afford it, shorter is usually better in the world of mortgage terms and amortizations.

We Can Help You Decide Which Mortgage Term Is Right for You

How do you know which mortgage term and amortization period to select? Even though shorter terms are usually better, they aren’t always the best choice.

Extending the length of your mortgage can allow you to secure a loan for a higher amount, which may make the difference in landing your dream home and having to settle.

Are you still wondering how to navigate the world of mortgage terms and amortization periods? Book a meeting today and we can explore which of these mortgage options are right for you.

Hi, I’m Joel, a real estate professional based in Toronto.

My approach is simple—I put you first. I believe in open communication, total transparency, and meaningful results. I’ll guide you through the real estate process, market values, and always keep the focus on you—and your needs.