How Canadian Mortgages Are Different

Canadian mortgages are compounded semi-annually (every 6 months), not monthly like US mortgages. This means even if you make monthly payments, interest is calculated and added to your principal twice per year. This is a major difference: a $300,000 mortgage at 6% compounds differently in Canada than the US, resulting in approximately 0.15–0.25% higher effective cost. The lender quotes you a "mortgage rate," but the actual interest calculation depends on the compounding frequency.

Amortization Period vs. Mortgage Term

These are not the same. Amortization is the total time to pay off the mortgage (typically 25, 30, or 35 years). The mortgage term is how long the interest rate is locked in (typically 5 years in Canada). You might have a 30-year amortization but a 5-year term. When the term expires, you renegotiate the rate and sign a new term. If you extend the amortization beyond 25 years, you pay significantly more interest.

Prepayment Privileges and Accelerated Payments

Most Canadian mortgages allow annual prepayment (typically 15–20% of the original principal) without penalty. Some lenders offer accelerated bi-weekly or weekly payments, which reduce your amortization by 1–2 years. Others allow payment doubling. Using these privileges strategically—especially with a tax refund or bonus—can save tens of thousands in interest. A $500,000 mortgage at 6% could cost $20,000 less in interest if you make accelerated payments.

Variable vs. Fixed Rate Mortgages in 2026

Fixed-rate mortgages lock in a rate (currently 5.5–6.5% in 2026). Variable-rate mortgages (prime-based) fluctuate with Bank of Canada rates (currently 5.5–6.5%). Variable rates typically start 0.5–1.5% lower than fixed but carry rate-increase risk. If you lock in a 5% variable and rates rise to 7%, your payment increases. Historically, variable mortgages have saved borrowers money, but require comfort with uncertainty.

What Happens at Mortgage Renewal

When your term expires (usually 5 years), your lender sends a renewal offer at the current prevailing rate. You don't have to accept—you can shop with other lenders and potentially save 0.5–1.5% by switching. Lenders often offer renewal discounts if you threaten to leave. Never automatically sign the renewal offer; shop around. You can also break your mortgage early by paying a penalty (interest rate differential or three months' interest, whichever is greater).