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25-year mortgage amortization period

With the most common mortgage length in Canada, you can lower your monthly mortgage payments and free-up your cash flow.

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A 25-year mortgage is the most common mortgage length in Canada – but that doesn’t mean it’s the right choice for everyone. If you’ve got an insured mortgage, 25- years is the longest amortization period you can choose, while those with an uninsured mortgage can take advantage of 30- or 35- year mortgages. But if you’re looking to own your home faster and pay less interest over the life of your mortgage, you’ll want to look into 15- or 20- year amortization periods.

How does a 25-year mortgage compare to other amortization periods?

With an amortization period of 25- to 35- years, you can keep your monthly payments low, but you’ll pay more interest over the life of your mortgage. Depending on your APR, you can end up paying close to your initial principal in interest alone with a 25-year amortization period — though you’ll pay less than with a 30- or 35- year term. By shortening your term to 15- or 20- years, you’ll pay more monthly, but can save big in the long run when it comes to interest.

For a $200,000 mortgage at a fixed interest rate of 3%, you’d pay…

Mortgage termMonthly PaymentTotal Interest PaidSavings
10 years$1,929.50$31,540.01$16,747.81
15 years$1,379.38$48,287.82$17,472.80
20 years$1,107.34$65,760.62$18,186.68
25 years$946.49$83,947.30$18,886.60
30 years$841.21$102,833.90$19,569.88
35 years$767.63$122,403.78

For example, on a 25-year mortgage of $200,000 at a fixed-rate of 3%, you’d pay approximately $946.49 monthly, and your total interest paid by the end of the mortgage would amount to around $83,947.30. In comparison, a 15-year mortgage would result in higher monthly payments of around $1,379.38, but a much lower total interest paid of $48,287.82. That’s almost half the interest.

A 30-year mortgage, on the other hand, would require a low monthly payment of $841.21, but would come with a much higher total interest paid of $102,833.90.

This is sample data. The rate you’re offered will depend on the loan term, the interest rate (fixed vs. variable, your down payment, credit score and income.

What are the benefits of a 25-year mortgage?

A 25-year mortgage offers a few useful benefits for homeowners, including:

  • More savings. Spending less on monthly mortgage payments could help free up your cash flow and help you live a more comfortable lifestyle. However, you’ll pay more in interest in the long run.
  • Minimize risk. Having a longer amortization period allows you to minimize the risk of any cash flow shortages. Should you lose your job or have financial difficulties, a lower monthly mortgage payment might save you from defaulting.

What should I watch out for?

Taking out a 25-year mortgage does have potential pitfalls:

  • Pay more interest. Since you’re paying smaller monthly payments, you’ll pay more interest over the life of the mortgage than you would with a shorter amortization period.
  • Build equity slower. Compared to a shorter-term mortgage, it takes longer to build equity and truly own your home with a 25-year mortgage.

Is a 25-year mortgage right for me?

A 25-year mortgage is the most common mortgage length in Canada and is usually a solid option. Although you’ll pay more interest over the life of a 25-year mortgage than you would with a 15-year mortgage, you can keep your monthly repayments low and enjoy a comfortable lifestyle.

A 25-year amortization period is also the longest mortgage length you can choose if you have an insured mortgage. Those with uninsured mortgages can choose amortization periods of 30- or 35- years.

If you’re looking to pay the least amount of interest that you can, you’ll want to choose a much shorter mortgage length than 25- years. Although you don’t want to be cash poor, you could opt for an amortization period of 15- or 20- years, or you could choose an open mortgage and make extra repayments each year to cut down your principal balance and ultimately pay less in interest.

Variable rate vs fixed-rate 25-year mortgages

Variable rate mortgages come with fluctuating interest rates that are not fixed for the mortgage term. A variable rate is typically expressed as the prime rate + or – a number. The prime rate can change based on the economy and is determined by the Bank of Canada’s overnight rate. While you might wonder why anyone would want to risk rising interest rates, a variable rate is usually fairly lower than a fixed-rate, especially for the first few years that you pay your mortgage. Over the life of the mortgage, a variable rate can save you a fair amount of money – if the prime rate stays competitive for the long run.

For a more detailed explanation of variable rate mortgages, check out our guide here.

A fixed interest rate, on the other hand, will stay fixed for the term – whether that’s as low as 6 months or as high as 10 years. Once your term ends, you can refinance with the same lender or switch to another lender. A fixed-rate usually starts out higher than a variable rate, but may end up lower than the variable rate within a few years, again depending on the prime rate.

Learn more about fixed-rate mortgages here.

Which makes for the better choice depends on if you prefer knowing how much you’ll pay each month or whether you’re willing to take a risk on the prime rate staying low and competitive. What could be a better choice might be taking out a convertible mortgage, which allows you to reap the benefits of a low variable-rate for a few years and then switch to a fixed-rate mortgage once the prime rate rises. Another choice would be a hybrid or combination mortgage, which is usually a 50/50 combination of both a fixed-rate and a variable rate mortgage.

Which lenders offer a 25-year mortgage?

Most lenders, including banks, credit unions and online lenders, will offer 25-year amortization periods, as it’s the most common mortgage length in Canada.

Bottom line

If you want financial flexibility and don’t mind paying more in interest over the life of your mortgage, a 25-year amortization period may be right for you. If you have an insured mortgage – where your downpayment is less than 20% – a 25-year amortization period is the longest period you can choose anyway.

If you’re looking to pay off your mortgage faster and cheaper, you’ll want to compare shorter amortization periods to find the one that best suits your needs.

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