How to choose a mortgage term in Canada?

Which mortgage term is right for you?

The term of your mortgage will likely be determined by your personal financial situation, as well as your short and long-term financial goals. Generally speaking, if you commit to a longer term, the lender will give you a better rate than if you commit to a shorter term.

Therefore, if you are looking to keep your monthly payments to a minimum, a longer term will probably be a better option for you. In addition, if interest rates rise, a long-term contract offers additional protection. However, a shorter term allows for a bit more flexibility, which can be beneficial for someone looking to quickly climb the real estate ladder in the coming years.

It is important to try to look ahead and know what your current plan is. If you plan to move and sell your property within the next two years, avoid committing to a longer contract than necessary. A prepayment penalty fee will be charged if you sell your home before the end of the term.

The TD Canada Trust study found that 7 out of 10 Canadian homebuyers moved sooner than they had originally planned. So even if you think you’re going to live somewhere for ten years, sometimes it’s best to be cautious.

The term you choose will have a direct impact on your interest rate. Your current personal situation will determine the length of time that is appropriate for you to keep your monthly payments at a level that is convenient for you.

Breaking your mortgage contract before the end of the term

As we have seen, it is important to choose the length of your mortgage carefully, especially if you plan to sell your property within a certain time frame.

Unfortunately, life is often unpredictable and personal circumstances can change dramatically, leading you to sell your property and break your mortgage early.

If you have to break your mortgage agreement early, you may incur significant prepayment fees. It is important to keep this in mind when choosing the term of your mortgage.

How to avoid breaking your mortgage contract early

It is possible to avoid breaking the term of your mortgage and incurring fees, while modifying your mortgage.

Some lenders will allow you to transfer your mortgage to a new property, provided you remain a customer of that lender. This means that you can sell your current property and move up the real estate ladder without having to pay the significant fees normally associated with breaking conditions.

Moving before the end of your term: penalty, porting and CMHC insurance

If you expect to buy a bigger home in 3 to 5 years, the cost of breaking your mortgage matters as much as the rate when you pick a term. As of October 2026, the Financial Consumer Agency of Canada (FCAC) says the prepayment penalty is usually the higher of these 2 amounts:

• 3 months' interest on what you still owe
• The interest rate differential (IRD), which lenders usually apply when your rate is higher than today's rate and you signed your contract within the last 5 years

The gap can be large. In the FCAC example ($200,000 balance at 6%, 36 months left, 4% posted rate for a 36-month term), 3 months' interest comes to about $3,000, while the IRD reaches about $12,000. The calculation method is set out in the information box at the start of your contract: read it before choosing between a 3-year and a 5-year term.

If your mortgage is insured by CMHC, the mortgage loan insurance can also follow you to the new property through CMHC Portability. The main conditions, as of October 2026:

• Borrower: at least one borrower on the new loan must be from the original CMHC-insured loan
• Timing: the original property must be sold, and the request received within 6 months of that property's closing date
• Premium: no new premium if the new loan does not exceed the outstanding balance, the loan-to-value ratio does not increase and the amortization does not exceed the remaining amortization, otherwise a premium applies to the increase
• Premium credit: 100%, 50% or 25% of the premium already paid if the loan is ported within 6, 12 or 24 months of the original closing date, and no credit after 2 years

Porting the loan itself (your rate and conditions) depends on your lender and your contract, while porting the insurance follows CMHC's rules. Ask both questions before you sign. To weigh the other big choice in your contract, see our guide on fixed or variable mortgages.

Popularity of the mortgage term

The length of time chosen by Canadians can vary considerably depending on the age group. As mentioned earlier, when looking at all the term options, the most popular is the 5-year term, which 66% of Canadians subscribe to. However, if you look at the statistics in detail, you will find that younger people (18-34) are more likely to take out a 2-4 year mortgage than those in the 35-54 or 55+ age categories. 27% of 18 to 34 year olds choose this mortgage term category, compared to 12% of those 55 and older.

Terms longer than 6 years are quite rare, and terms longer than 10 years are generally not available; as we can see, these terms are purchased by the 55+ group, but by no one else, and even then only 2% chose a term longer than 10 years.