Term and amortization are not the same number

In most of the world a mortgage is written for its whole life at one rate. In Canada it is not. Your amortization — typically twenty-five years — is the schedule your payment is calculated from. Your term — typically five years or fewer — is how long the lender is bound to the rate and the conditions in your contract. At the end of it the balance is due, and in practice you renew it.

So the payment you agreed to is derived from a twenty-five-year plan you have not agreed to. You have agreed to five years of it. Everything after that is a negotiation you have not had yet, at a rate nobody knows.

Early in an amortization, almost all of each payment is interest. The table below shows the consequence: after a full five-year term on an ordinary mortgage, you have paid six figures in interest and still owe close to nine-tenths of what you borrowed. The balance you carry into your first renewal is very nearly the balance you started with.

That reframes what the two negotiations are worth. Shopping hard for a good rate at origination affects five years of a twenty-five-year debt. Shopping equally hard at every renewal affects the other twenty — on a balance that has barely moved. Most borrowers put the effort in the other order, and lenders are aware of that: the renewal offer that arrives in the mail is frequently not the lender's best rate.

It also explains why the break penalty matters so much. If your term is five years and your circumstances change in year three — a move, a separation, a rate you cannot pass up — you are not walking away from a small remainder. You are breaking a contract on most of your original principal.

Extending your amortization lowers your payment and raises the total interest, because the debt lasts longer. Shortening it does the reverse. That lever is about affordability and it is the one most people understand.

Choosing a term does not change your payment at all, unless the rate does. It is a bet on where rates go, and a decision about how long you want the option to leave. A shorter term costs less in penalty exposure and more in renewal frequency; a longer one is the reverse. Neither is a way to pay less interest on its own.