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 TermFrom 2006 - 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 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.
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.