Mortgage term — Canada vs US
In Canada, the term is how long your rate is locked before renewal — typically 1 to 5 years. In the US, the term is the full loan length. They are not the same thing.
"Mortgage term" means something completely different depending on which side of the 49th parallel you are on. In the United States, a 30-year mortgage has a 30-year term — the rate is fixed for the entire loan life, and there is no renewal. In Canada, "term" refers to how long your current interest rate is locked — typically five years — before the mortgage must be renewed, usually at a different rate.
The Canadian concept of a term is best understood as a series of short agreements stacked inside a longer amortization. The diagram below shows this visually.
Real number examples
Example 1 — Canada: same mortgage, two different term rates
Mortgage: $500,000 over 25 years. Term 1 (2020): 5-year fixed at 2.34%. Monthly P&I (semi-annual compounding): $2,208/month. Term 2 (2025): renewal at 5.15%. Monthly P&I on the remaining balance of ~$427,000: $2,498/month — an increase of $290/month without borrowing another dollar.
Example 2 — US: rate locked for 30 years
Mortgage: $500,000 over 30 years at 7.25%. Monthly P&I: $3,411/month. This payment never changes. There is no renewal, no repricing, no rate risk after closing. The trade-off: the US fixed rate is usually higher than a short Canadian term because the lender bears the rate risk for 30 years.
Example 3 — Breaking a Canadian term mid-period
If you have a 5-year fixed mortgage with 2 years remaining and want to refinance at a lower rate, the lender charges an Interest Rate Differential (IRD) penalty. On a $400,000 balance with a contract rate of 5.25% and current 3-year posted rate of 4.50%, the IRD penalty can be roughly $400,000 × (5.25% − 4.50%) × 2 years = $6,000. In practice the posted-rate formula used by banks can produce penalties of $15,000–$30,000 or more. Variable-rate mortgages carry a simpler 3-month interest penalty instead.
Term length choices in Canada
| Term length | Typical rate premium | Rate exposure | Break penalty |
|---|---|---|---|
| Variable | Lowest (when curve normal) | Moves with BoC rate | 3 months interest |
| 1-year fixed | Low | Renews annually | 3 months interest |
| 3-year fixed | Medium | Renews every 3 years | IRD or 3 months |
| 5-year fixed | Highest (most popular) | Locked for 5 years | IRD (can be large) |
Frequently asked questions
What happens when my mortgage term ends in Canada?
When your term expires you must renew — either with your current lender or a new one. Your lender will offer renewal terms, but you are free to shop around. If you switch lenders at renewal, the new lender typically requires a stress-test re-qualification. At renewal, your entire remaining balance reprices at whatever rate you negotiate, which is why Canadian borrowers are more directly exposed to interest rate movements than US borrowers with long fixed terms.
Should I choose a shorter or longer term in Canada?
A 5-year fixed term gives certainty for five years at the cost of a higher rate than shorter terms. A 1 or 2-year term offers a lower rate but exposes you to rate risk sooner. Variable-rate mortgages (tied to prime) move with the Bank of Canada policy rate. Historically, variable rates have been lower over time, but the volatility can be stressful. The right choice depends on your rate forecast, payment tolerance, and whether you may need to break the mortgage (short fixed or variable carry lower penalties).
How does the term affect my interest rate?
In Canada, shorter terms (1–2 years) often carry lower rates because lenders bear less rate risk over a short commitment. Longer terms (5 years) typically cost more because the lender is locked in. In a normal (upward-sloping) yield curve, 5-year rates are higher than 1-year rates. When the curve inverts — as it did in 2022–2023 — short-term rates can exceed long-term rates, making 5-year fixed mortgages temporarily cheaper than variable rates.
What is a variable-rate term?
A variable-rate mortgage has a rate tied to the lender's prime rate, which moves with the Bank of Canada's overnight rate. Most Canadian variable-rate mortgages are expressed as "prime minus X%" (e.g., prime − 0.75%). In an adjustable-rate mortgage (ARM) the payment changes when prime changes. In a static-payment variable (more common in Canada), the payment stays fixed but the split between principal and interest shifts — meaning principal paydown can slow dramatically when rates rise, sometimes leading to negative amortization.
How is the Canadian term different from the US mortgage term?
In the US, "term" almost always means the full loan duration — 30 years, 15 years, or 20 years. A 30-year fixed mortgage locks the rate for the entire 30 years. There is no renewal, no repricing, and no exposure to future rate changes. In Canada, the amortization (full payoff horizon) is 25 years typically, but the term is just 1–5 years. The rate resets at each renewal. This structural difference means Canadian borrowers carry ongoing interest-rate risk that US 30-year fixed borrowers do not.
Calculate for your term
Both calculators let you enter any rate — model different term scenarios to see the payment and total interest impact.
Related terms: Stress test (Canada) · Principal vs interest · Refinancing your mortgage · Loan-to-value (LTV)