If you have never read a mortgage statement closely, the terminology can feel overwhelming. Here is a plain-English breakdown of what each number means.
Principal is the amount you actually borrowed — your purchase price minus your down payment. Every mortgage payment chips away at this number.
Interest is the cost of borrowing that principal. In the early years of your mortgage, the vast majority of each payment goes to interest, not principal. This ratio shifts gradually over time.
Amortization is the total length of time it will take to pay off your mortgage in full at your current payment level — typically 25 years in Canada.
Term is different from amortization. Your term is the period for which your interest rate is locked in — commonly 5 years. At the end of each term, you renew at whatever rates are available then.
At renewal, you have real leverage. Your lender will send you a renewal offer, but you are not obligated to accept it. Shop around. Even a 0.2 percent difference on a $400,000 balance saves thousands over the term.
Prepayment privileges allow you to pay down extra principal each year without penalty — often 10 to 20 percent of the original principal annually. If you come into extra money, this is one of the best ways to use it.