Amortization
Quick Definition
The total length of time to pay off a loan through scheduled payments.
Full Explanation
Amortization refers to the process of paying off a loan over time through regular scheduled payments. Each payment covers both interest and a portion of the principal. In the early years, most of the payment goes toward interest; later, more goes toward principal. In Canada, the maximum amortization for CMHC-insured mortgages is 25 years (30 years for first-time buyers purchasing new builds since 2024). Longer amortization periods mean lower monthly payments but significantly more interest paid over the loan's life.
Related Terms
Mortgage
A secured loan used to purchase real estate, with the property as collateral.
Loan Term
The length of time you agree to specific loan conditions before renewal.
Principal
The original loan amount borrowed, before interest is applied.
CMHC (Canada Mortgage and Housing Corporation)
Federal Crown corporation that provides mortgage default insurance for high-ratio mortgages.
Ready to put this knowledge to use?
Use our free calculators to model your situation based on what you've just learned.