Most of the thinking at renewal goes into who holds the mortgage. That is the right instinct, and it is where the money usually is. But there is a second decision on the same page, and it tends to get made in about ten seconds: how long the new term runs.
That one is worth slowing down for. The lender you choose sets your cost for the next few years. The term you choose sets your flexibility — when you are next free to move, what it costs if your plans change before then, and how much you can pay down along the way. Two people can renew with the same lender on the same day and end up with very different room to manoeuvre, purely on term length.
Term is not amortization
Worth separating these first, because they get used interchangeably and do completely different jobs.
The Financial Consumer Agency of Canada puts it simply: the term is “the time your mortgage contract is in effect”, and terms may run from a few months to five years or more. The amortization is the time it takes to pay the mortgage off entirely. You will go through several terms over one amortization.
So the term is not a commitment to your debt. It is a commitment to a contract. A shorter one does not mean paying the house off faster, and a longer one does not mean carrying it longer.
What a shorter term gives you
A shorter term puts you back at the table sooner. That is the whole of it, and it is more valuable than it sounds.
Every maturity date is a free exit. At maturity there is no charge for leaving and the full market is open to you. If your life is likely to change shape in the next couple of years — a move, a growing family, a business heading somewhere different — a shorter term means the contract is not the thing standing between you and your plans.
FCAC notes that most Canadian mortgage holders sit at five years or less, and shorter terms generally give you the choice of a fixed or a variable rate.
What a longer term gives you
A longer term gives you a settled number and fewer decisions to manage. If your plans are firm and you would rather not revisit this for a good while, that has real value — certainty is worth something, and there is no prize for renewing more often than you need to. FCAC does flag one trade-off on terms greater than five years: you may only have the fixed option available, and leaving early can carry a substantial charge.
The five-year line in the Interest Act
This is the part almost nobody hears about, and it only becomes relevant if you are looking at a term longer than five years.
Section 10 of the federal Interest Act deals with mortgage money “not, under the terms of the mortgage or hypothec, payable until a time more than five years after the date of the mortgage.” Once five years have elapsed, the Act allows the borrower to tender the principal and interest owing to that point, “together with three months further interest in lieu of notice” — and from there, no further interest is chargeable, payable or recoverable.
In plain terms: a long term does not lock you in indefinitely on a personal mortgage. Parliament put a ceiling on it.
Two honest caveats. Section 10(2) says this does not apply to mortgages given by corporations or joint stock companies, so it protects individual borrowers, not corporate ones. And exactly where the five years is counted from on a mortgage that has been renewed more than once is a question worth putting to your lender and your lawyer in writing rather than assuming. I raise it because a ten-year term reads very differently once you know the provision exists.
The exit question
Whatever term you land on, ask what it costs to leave before it ends. Not because you plan to — because knowing the answer is what makes the choice informed.
FCAC sets out the usual method: a prepayment charge is generally the higher of three months’ interest on what you still owe, or the interest rate differential. The differential calculation tends to come into play where your contract rate sits above current rates and you signed less than five years ago. On an open mortgage, you can prepay without a charge at all.
You also have rights here worth using. Federally regulated lenders must set out prepayment privileges and charges in a single, prominently displayed information box in the agreement, must tell you how the charge is calculated, and must confirm the applicable charge in writing when you ask about repaying. Get that before you commit, not after.
Prepayment privileges come with the term
Your ability to make lump-sum payments or raise your regular payment is a feature of the contract you are about to sign, and it varies by lender. FCAC describes these privileges as what you can put toward the mortgage on top of regular payments without triggering a charge, usually capped annually.
If paying down aggressively matters to you, this belongs in the term conversation. A contract with more generous privileges can be worth more to you than a headline number.
Matching the term to what is actually ahead
A few questions that usually settle it quickly:
- Is a move likely? Ask whether the mortgage can travel to the next property. Portability is lender policy rather than regulation, so it varies — which is why it is worth asking before signing.
- Are renovations or a suite in the picture? That may point toward a refinance rather than a straight renewal, and the term should be chosen with that plan in view.
- Is your income picture about to change shape? A shorter term keeps you close to the table while things settle.
- Is everything steady? Then a longer term is doing exactly what you want it to.
Where I come in
I work with 50+ lenders — banks, credit unions, monoline and specialty lenders — and each prices terms differently and attaches different privileges, portability rules and exit terms to them. Comparing those side by side is the hard part to do on your own, and it is the part I do all day. On conventional mortgages there is no cost to you for my work.
If your renewal is coming up in the next six months, I would rather look at it early than late. There is more on how BC renewals work on my mortgage renewal page — or get in touch and we will go through your options together.