When it comes to mortgages in Canada, there are two terms that are important to understand – mortgage term and amortization period. These two terms are often confused, however, they refer to different aspects of a mortgage. Knowing the difference between mortgage term and amortization period can help you choose the best mortgage option for your needs.
Mortgage Term
The mortgage term is the length of time you agree to a particular set of terms with your lender. The most common mortgage terms in Canada are six months, one year, two years, three years, four years, five years, and seven years. The term you choose will determine the interest rate and other terms of your mortgage.
When you select a mortgage term, you are essentially locking in an interest rate and other terms for the duration of your mortgage. For example, if you choose a five-year term, you will be locked into that rate and terms for the entire five-year period. If interest rates go up during that time, you will not be able to take advantage of the lower rates.
Amortization Period
The amortization period is the length of time it will take you to pay off your entire mortgage. The most common amortization periods in Canada are 25 years, 30 years, and 35 years. The amortization period you choose will determine how much you will pay each month, but the total amount you pay over the life of the mortgage will remain the same regardless of the amortization period you choose.
For example, if you have a mortgage of $150,000 with an interest rate of 3.5%, and you choose a 25-year amortization period, you will pay a total of $214,721 over the life of the mortgage. However, if you choose a 30-year amortization period, you will pay the same total amount ($214,721), but your monthly payments will be lower.
The Difference Between Mortgage Term and Amortization Period
The main difference between the mortgage term and amortization period is that the mortgage term is the length of time you agree to the terms of your mortgage, and the amortization period is the length of time it will take you to pay off your entire mortgage.
When you are choosing a mortgage term, you are essentially locking in an interest rate and other terms for the duration of that term. The amortization period you choose will determine how much you will pay each month, but the total amount you pay over the life of the mortgage will remain the same regardless of the amortization period you choose.
Conclusion
When it comes to mortgages in Canada, it is important to understand the difference between mortgage term and amortization period. The mortgage term is the length of time you agree to the terms of your mortgage, and the amortization period is the length of time it will take you to pay off your entire mortgage. Knowing the difference between mortgage term and amortization period can help you choose the best mortgage option for your needs.