Mortgage Basics

Can I Get a 30-Year Mortgage in Canada?

Can I Get a 30-Year Mortgage in Canada?

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    When you hear about a 25-year mortgage or a 30-year mortgage in Canada, this is in reference to the amortization period of your mortgage. The amortization period is the length of time required to pay off the mortgage balance in full through regular payments. 

    While the most common mortgage amortizations in Canada are 25-year mortgages, many are interested in longer periods, especially in our current high interest rate environment. In this article, we break down what a 30-year mortgage is, how to get one, and why it’s inaccessible to many homebuyers.

    Key Takeaways

    • 30-year mortgages refer to the amortization or length of time it takes to pay off the mortgage balance in full. 
    • 30-year amortizations are typically available only to those with downpayments of at least 20%.
    • 30-year mortgages may lower monthly payments. However, they come at the cost of higher interest over the life of the loan.

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    Can I Get a 30-Year Mortgage in Canada?

    While you can get a 30-year mortgage in Canada, most mortgages will feature a 25-year amortization period. This is primarily because CMHC only offers mortgage default insurance coverage for mortgages with a maximum amortization period of 25 years. Essentially, it’s not that you can’t get a 30-year mortgage; it’s just much harder to do so without a large downpayment. 

    Update: Recently announced changes to regulations on insured mortgages are tabled to take effect on August 1st, 2024. These new regulations will relax the amortization rules for first-time buyers, allowing them to take out a 30-year amortized default-insured mortgage when purchasing a newly built home. 

    What Is the Longest Mortgage Amortization You Can Get in Canada?

    Currently, a typical mortgage has a 25-year amortization period, but there used to be mortgages offering an amortization period of up to 40 years for insured mortgages. However, this was scrapped by the federal government of Canada in 2008 when mortgage regulations were tightened, and the amortization was reduced to 35 years. In 2011, the amortization period was again reduced to 30 years; in 2012, it was reduced one final time to 25 years. 

    The maximum amortization allowed on insured mortgages today is 25 years, so this option is usually the most popular. There is no set maximum mortgage amortization period for uninsured mortgages. Sub-prime lenders offer mortgages with more than a 30-year amortization period. However, those who opt for uninsured mortgages can select a 30-year amortization from prime lenders if they pass up on the 25-year option.

    Pros & Cons of a 30-Year Mortgage in Canada

    Pros Cons
    More purchasing power Higher interest rates
    Smaller mortgage payments Slow equity growth
    Added flexibility Higher interest-carrying costs
    Uninsured – no mortgage default insurance premiums Requires a 20% or more downpayment

    Pros of 30-Year Mortgage 

    If you’re considering a 30-year mortgage, it’s important to weigh the pros and cons. Here’s why some homebuyers prefer to opt for a 30-year amortization.

    More Purchasing Power

    With a 30-year mortgage, your borrowing power increases, allowing you to shop for more expensive homes. One key factor lenders assess when looking for a mortgage is your debt service ratio. Spreading your mortgage payments out over 30 years compared to 25 lowers your monthly payments, making qualifying easier and increasing your purchasing power. 

    Smaller Mortgage Payments 

    Since your mortgage payments are spread over 5 more years, this reduces your monthly payments, leaving you with extra funds left over each month. These extra funds can be saved for emergencies or invested, giving you better peace of mind.  

    Added Flexibility 

    Given that CMHC does not insure 30-year mortgages for everyone, this grants certain freedoms. One is the freedom to purchase homes over $1 million, pending the lender’s lending limits where your property is located. Another perk of 30-year amortizations is the possibility of porting your mortgages to a new home over $1 million, although you’ll only be able to port your remaining balance and amortization. 

    For instance, assume that you own a condo presently worth $700,000. You could move or transfer this mortgage to a new home worth over $1,000,000 that you want to buy, which wouldn’t be possible with an insured mortgage. With an insured mortgage, you would likely need to break your current mortgage, pay a prepayment penalty and potentially lose a lower interest rate. 

    Easily Increase Payments 

    Since choosing a 30-year mortgage may result in a lower mortgage payment, you can utilize any prepayment privileges that allow you to make extra payments and pay off your mortgage within a shorter time frame without any penalties. 

    In other words, you could pay off the mortgage in less than 30 years, speeding up your repayment schedule and reducing your total interest-carrying costs. This allows you to put any windfall gains or increases in income to good use. You can shorten the amortization anytime through additional payments or lump sum amounts within your annual prepayment limits. 

    Once you’ve built up at least 35% equity in your home and your home hasn’t exceeded in value past $1 million, then upon renewal, you could take advantage of lower insurable rates with a renewal into a 25-year or less amortization. Though higher than insured rates, insurable rates are comparable and typically much lower than uninsured ones. Insurable rates allow lenders to purchase low-ratio bulk portfolio insurance from CMHC to protect themselves from mortgage default risk. This provides much lower rates for mortgage renewal.

    Cons of 30-Year Mortgage 

    If you’re considering a 30-year mortgage, it’s important to ensure the cons don’t outweigh the pros. Here’s why some homebuyers may not want to opt for a 30-year amortization.

    Higher Interest Rates 

    The lowest rate for a 30-year amortization in Canada is typically higher than a similar 25-year amortization mortgage. This is due to the restriction of 30-year amortizations only allowed on uninsured mortgages. Not only will you be paying a higher interest rate, but you’ll also be doing so over a longer duration, compounding the total interest you will pay over the life of the mortgage. 

    Default-insured mortgages have the lowest interest rates because the added mortgage default insurance protects the lender in case of default. Lenders offer the lowest rates due to the lower risk, encouraging borrowers to opt for this option. Uninsured mortgages are riskier for the lender, so they will price this risk into the mortgage rate offered to you to offset it as a part of their funding costs. 

    Slow Equity Growth

    When choosing a 30-year amortization, it’s important to understand that it will take longer to pay off your mortgage while you will pay more interest over time. The price of the home may not increase as fast as your remaining mortgage balance reduces during that same time. Although you’re building equity by paying down your mortgage, it may not align with increasing home prices. At any given time, home prices typically tend to increase and decrease in the opposite direction of mortgage rate trends. 

    Higher Interest-Carrying Costs 

    A 30-year amortization on your mortgage allows for lower monthly or bi-weekly payments since payments are spread out over a longer period. However, this means you continue paying interest for those extra 5 years. These additional years mean you will ultimately pay more in interest-carrying costs over the life of the mortgage. Even more important to note is that you would still incur these extra costs if your interest rate were the same as a 25-year mortgage. 

    Requires a 20% or More Downpayment

    Mortgages with 30-year amortizations typically require a 20% or more downpayment, which takes longer to save than a minimum 5% downpayment requirement on a 25-year mortgage. Saving 20% of the purchase price versus only 5% can significantly delay homeownership goals and possibly affect the borrowers’ qualifying amounts if regulations (such as stress tests) or home prices (increasing) become more restrictive.

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    Canadian 30-Year Mortgages: High-Ratio vs Low-Ratio Mortgages

    A high-ratio mortgage refers to mortgages where the downpayment made is less than 20% of the purchase price. Meanwhile, low-ratio mortgages have a downpayment of 20% or more.

    • High-ratio mortgages require mortgage default insurance, otherwise known as CMHC insurance. In addition to the mandatory insurance costs, this loan type has a maximum amortization period of 25 years. New changes tabled to come into effect Aug. 1st, 2024, will relax the 25-year amortization rule for first-time buyers purchasing a preconstruction or newly built home, allowing them to opt for 30-year amortized insured mortgages. 
    • Low-ratio mortgages may not directly require the borrower to pay for default insurance, so you will save money by not adding this additional expense. With prime lenders, this type of loan can also have an amortization period of up to 30 years. 

    Am I Eligible for a 30-Year Mortgage in Canada? 

    Beyond the mandatory minimum of a 20% downpayment, eligibility is determined by the same key factors for any mortgage, including a potential borrower’s credit score, income, and debt service ratio. All of these are thoroughly assessed by lending institutions to evaluate the risk associated with granting a mortgage loan to the applicant. 

    Note: If you’re a first-time buyer purchasing a preconstruction or newly built home and can satisfy the above eligibility criteria, you may qualify for a 30-year amortized mortgage with less than 20% as a downpayment if the proposed changes in Budget 2024 are approved.

    Your credit score plays a pivotal role in determining your eligibility for a mortgage. It serves as an indicator of the borrower’s debt repayment habits and financial discipline.

    Income is another significant factor affecting eligibility. Lenders need assurance that the borrower has a stable income source that can adequately cover the mortgage payments, property taxes and heating costs over the life of the loan. 

    Your debt service ratio is also taken into account. This ratio measures a person’s total debt obligations in relation to their income. A lower ratio indicates that the person has a greater percentage of their income available for mortgage payments. The lender will use up to 35% of your gross income to service costs on an uninsured mortgage and up to 39% if your mortgage is insured. However, if your credit score is below 680, the lender may limit including only 32% of your gross income to service your mortgage.

    What Is the Best Mortgage Amortization For You?

    A longer amortization may not always be the best solution. While it may decrease your monthly payments, freeing up cash flow, it may also significantly increase the total interest you will pay over the life of the mortgage. It’s important to assess your financial situation, including what you have saved for a downpayment. You should also review your short and long-term goals to see if an extended amortization helps you meet those goals.  

    Comparing 30-Year Mortgage vs. 20-Year Mortgage in Canada 

    Here’s a comparison between the 20-year vs 30-year mortgage for an $800,000 property on a 5-year fixed rate. 

    20-year mortgage (CMHC insured) 20-year mortgage (20% downpayment) 30-year mortgage (20% downpayment)
    Minimum Downpayment $55,000 $160,000 $160,000
    CMHC Premium $29,800 NA NA
    Total Mortgage Amount $774,800 $640,000 $640,000
    Interest Rate  5.19% 5.39% 5.99%
    Monthly Payment $5,171 $4,341 $3,803
    Total Interest $466,286 $401,940 $729,033
    Total Mortgage Amount $1,241,086 $1,041,940 $1,369,033

    Comparing 30-Year Mortgage vs. 25-Year Mortgage in Canada 

    Here’s a comparison between the 25-year vs 30-year mortgage for an $800,000 property on a 5-year fixed rate. 

    25-year mortgage (CMHC insured) 25-year mortgage (20% downpayment) 30-year mortgage (20% downpayment)
    Minimum Downpayment $55,000 $160,000 $160,000
    CMHC Premium $29,800 NA NA
    Total Mortgage Amount $774,800 $640,000 $640,000
    Interest Rate  5.19% 5.39% 5.99%
    Monthly Payment $4,590 $3,866 $3,803
    Total Interest $602,333 $519,687 $729,033
    Total Mortgage Amount $1,377,133 $1,159,687 $1,369,033

    A Comparison of 25 vs 30-Year Amortization With the Newly Proposed Regulations 

    If you are a first-time buyer and have a minimum 5% downpayment on a newly built home, the comparison below shows the impact on the total interest you will pay on an $800,000 property with a 5-year fixed rate under the newly announced regulations that if approved will take effect August 1st.

    25-year mortgage (CMHC insured) 30-year mortgage (CMHC insured)
    Minimum Downpayment $55,000 $55,000
    CMHC Premium $29,800 $29,800
    Total Mortgage (Principal) Amount $774,800 $774,800
    Interest Rate  5.19% 5.19%
    Monthly Payment $4,590 $4,223
    Total Interest $602,333 $745,602
    Total Mortgage (Principal + Interest) Amount $1,377,133 $1,520,402

    Is There a Difference in Interest Rates for 30-Year Mortgages in Canada? 

    Generally, mortgages with longer amortization periods will have a higher interest rate than those with shorter ones. Depending on the lender, the discrepancy between the 25-year and 30-year mortgage rates can be quite significant. 

    Insured mortgages are covered by one of Canada’s 3 default insurers: CMHC, Canada Guaranty, or Sagen. These insurers cover the lender’s risk should you default on mortgage payments, allowing lenders to price mortgages with this insurance lower than uninsured mortgages. 

    For example, nesto’s best 5-year fixed insured mortgage rate is currently compared to the uninsured rate of . However, nesto is atypical to big bank lenders who collect deposits and savings from their clients, lending them out at much higher rates. 

    You’ll notice that the typical 5-year average insured rate at big banks is 5.47%. If you visit their website, you’ll notice that their 5-year uninsured rate is only 10 or 15 bps (1 basis point is 0.01%) higher than their insured rates. Big banks make up their risk on uninsured mortgages by charging a higher premium to their insured mortgage clients.

    Should You Get A 30-Year Mortgage in Canada?

    A 30-year mortgage can be a great option to make payments more manageable in today’s high interest rate environment. If you meet the requirements to choose 30 years over 25, there are ways you can reduce the additional interest you will pay over the life of the loan. 

    When you have extra funds, you can shorten your amortization and pay off your mortgage faster by making additional payments or lump sum prepayments. When you come up for renewal, you can also re-evaluate your amortization and opt for an insurable rate. 

    You could also make changes to your payment or payment frequency if your income has significantly increased, and you can manage higher mortgage payments, which will reduce the interest you pay over the loan’s lifetime.  

    Frequently Asked Questions

    Do 30-year mortgages exist in Canada?

    In Canada, a 30-year mortgage refers to the amortization period or the length of time it takes to pay off the mortgage. You can choose a 30-year amortization with most lenders if you have the required downpayment.

    How can I get a 30-year mortgage in Canada?

    To get a 30-year mortgage, you must have at least 20% or more as a downpayment and qualify under the uninsured debt service ratio criteria.

    What’s the longest amortization period for a mortgage in Canada?

    There is technically no maximum amortization period in Canada if you choose an uninsured mortgage. However, with prime lenders, you can only go up to a maximum of 30 years. Sub-prime lenders will allow amortizations of 40 years or more.

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    Final Thoughts

    Deciding between an insured 25-year amortization or an uninsured 30-year amortization should depend on your financial circumstances and homeownership goals. If you have the financial standing to choose both but aren’t sure what’s best for your needs, contact nesto’s mortgage experts for a suitable mortgage strategy to fit your unique needs.

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