The words ‘term’ and ‘amortization’ are thrown around a lot in the world of mortgages, but what do they actually mean and what’s the difference between Mortgage Amortization and Term ?

A mortgage Term is the length of time that your INTEREST RATE is set for. For example a 5 year fixed rate will guarantee you a certain rate for a 5 year TERM. A 5 year Variable rate will guarantee you a ‘discount off of the prime rate’ or ‘prime minus’ for a 5 year term. At the end of the term, you are free to re shop your mortgage for a new, lowest rate term again.

A mortgage Amortization is the length of time that your PAYMENT is based on. So the longer the amortization, the smaller the payment. A typical amortization is 25 years, but can be as high as 35 years and as low as the number of years in a single term.

A longer amortization will lower your monthly payment, but a shorter amortization will lower your monthly INTEREST expense by paying your mortgage off sooner.

So Term and Amortization are closely related. But clearly your interest rate will also affect how your payment works.