Term and amortization are not the same thing. Many people confuse them, and it costs them.
The amortization is the total number of years to repay your loan — often 25. The term is the length of the contract you sign with a given lender — often 3 or 5 years. At the end of the term you renew or change lenders, until the amortization runs out.
A short term: 1 to 3 years
You reposition more often. Useful if you expect to sell, if your financial situation is about to change, or if you believe market conditions will favour you soon. In exchange, you go through the renewal exercise more often and you are exposed to rate movements more frequently.
A long term: 5 years or more
You are settled for longer and you know what you are paying. The risk is having to break the term early: a separation, a job transfer, a sale, a need to refinance. The penalty on a long fixed term can reach several thousand dollars.
Questions to ask yourself
— Do I still expect to live here in five years?
— Is my professional or family situation likely to change?
— Am I planning to refinance for renovations or another project?
— Do I sleep better with a fixed payment, even if it costs a little more?
And the amortization?
A longer amortization lowers your monthly payment but raises the total interest paid over the life of the loan. A shorter one does the opposite. The rules on maximum amortization vary with the type of loan, the down payment and whether the mortgage is insured — and they change periodically. We will confirm what applies to your file at the time of your application.
A middle path: take a longer amortization to give yourself breathing room, then use your prepayment privileges to pay it down faster when the budget allows. You keep the flexibility without losing the speed.