Encyclopedia
Term (loan)
How long the current mortgage contract lasts before renewal.
For example: A borrower's term ends before amortization. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you finance a warehouse purchase with a five-year term and a longer amortization. At the end of the term, you renew or refinance at the rates of the day. You plan for that renewal from the start.
What I’d tell a friend
Know when your term ends and plan for renewal risk, especially if rates may be higher.
Why it matters to you
Your rate and conditions only last for the term. When it ends you'll need to renew or refinance, possibly at a higher rate or with tighter lending rules, so plan for that date.
How to use it in your deal
Borrowers should match the term to the plan: a short term if you might sell or refinance soon, a longer one if you want certainty. Ask about prepayment penalties and whether the loan can be assumed by a buyer. Model renewal at a higher rate and check debt coverage still works. Start renewal talks several months before maturity and compare other lenders.
Buyers taking over a property should ask when the seller's loan matures, since a lender's renewal terms can affect a sale. Owners with several properties should stagger maturities so they don't all renew in a bad year.
Mistakes I see
Confusing term with amortization. Leaving renewal to the last few weeks. Ignoring prepayment penalties when planning a sale. Assuming the lender will renew on the same terms.
In BC and Vancouver
Lenders set terms. The federal Interest Act contains some rules on prepaying long mortgages. The Bank of Canada's rate decisions drive pricing.
Official sources: Bank of Canada: key interest rates · Canada Mortgage and Housing Corporation
What it is
A term loan is a loan with a set term, such as five years, during which the rate and payments are fixed or follow agreed rules.
In Canada, the term is often shorter than the amortization, so the balance is renewed or refinanced at the end.
What to check
Look at the rate, prepayment penalties, covenants and renewal terms.
Test your cash flow at higher rates for the renewal, and talk with your lender well before the term ends.
Questions to ask before you sign
- When does the term end?
- What's the prepayment penalty?
- Can a buyer assume the loan?
- What happens to my payments at a higher rate?
- When should I start renewal talks?
Keep reading
Related terms: Amortization
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.