When you hear about a 25-year mortgage or a 30-year mortgage, this is referring to the amortization period of your mortgage. The amortization period refers to the length of time required to pay off the mortgage in full through your regular monthly mortgage payments. While the most common mortgage in Canada is the 25-year mortgage, many mortgage holders are interested in longer amortization periods. In this article, we break down what a 30-year mortgage is, how to get one, and why it’s inaccessible to so many homebuyers. 

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Key Takeaways

• You can get a 30-year mortgage in Canada, but only through a low-ratio mortgage 
• Mortgages with longer amortization periods mean lower monthly mortgage payments, but with higher interest rates.
• Whether or not you should opt for a longer amortization period depends on your present financial situation as well as your future finances

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Can I get a 30-year mortgage in Canada?

While you can get a 30-year mortgage in Canada, the bulk of mortgages will feature a 25-year amortization period. This is primarily because the CMHC only offers insurance coverage for mortgages that have a maximum amortization period of 25 years. Basically, it’s not that you can’t get a 30-year mortgage, it’s just much harder to do so and is impossible if you’re not planning on contributing a minimum of 20% down payment. 

What is the longest term you can get in Canada?

Currently, the average mortgage has a 25-year amortization period, but there used to be mortgages offering an amortization period of up to 40 years. However, this was scrapped by the federal government of Canada in 2008 when certain mortgage regulations were tightened. 

Presently, Canadians have the option of accessing Canada’s maximum mortgage amortization period of 35 years. Mortgages with this amortization period are not offered by A Lenders like credit unions and banks, and you would have to work with an alternative lender in order to get one. However, most people typically opt for a 30-year amortization if they pass up on the 25-year option. 

Pros Of A 30-year Mortgage

Here’s why some homebuyers prefer to opt for a 30-year mortgage.

Better Purchasing Power

This one’s pretty straightforward. With a 30-year mortgage, your borrowing power increases, allowing you to shop for more expensive homes. In fact, your purchasing power  can see up to a 15% boost when you opt for a 30-year mortgage over a 25-year one.

Reduces Mortgage Payment 

Since your mortgage payments are spread over at least 5 more years, this would reduce your monthly payments and leave you with some extra funds. 

Extra Flexibility 

Given that 30-year mortgages are not insured by the CMHC, this grants certain freedoms. One of these is the freedom to port your uninsured mortgage from your home to another home worth in the excess of $1,000,000. 

For instance, assuming that your home is presently worth $750,000, you could move or transfer this mortgage to a new home worth over $1,000,000 that you want to buy. 

This freedom may not be enjoyed by a 25-year amortization mortgage as it would likely need to be broken which would attract a penalty, and then the potential loss of a lower rate as well. 

Easily Increase Payments 

30-year mortgages may come with prepayment privileges that allow you to make extra payments, and pay off the mortgage within a shorter time frame without any penalties. 

In other words, you could pay off the mortgage in less than 30 years and therefore speed up your payment schedule. This clause allows you to put windfall gains or increase in income to good use.

Cons Of A 30-year Mortgage

30-year mortgages also come with certain cons.

Significantly Higher Rates 

The lowest rate for a 30-year mortgage in Canada would come in around 0.25% higher than a similar 25-year amortization mortgage. Putting this in figures, for every $100,000 in the mortgage, annual costs would be $250 less for a 25-year mortgage. 

Higher Interest Rates from Smaller Payments 

A 30-year mortgage allows for lower monthly or bi-weekly payments since the amortization period is longer. However, you would also keep paying interest through the extra 5 years. 

These years could result in you paying an extra $10,000 to $20,000 in interest. What’s even more interesting is that you could incur this extra payment even if your mortgage rate is the same rate as a 25-year mortgage.

High-Ratio vs Low-Ratio Mortgages

A high-ratio mortgage refers to a situation where the down payment on a mortgage is less than 20% of the purchase price. The mortgage is therefore determined by comparing the mortgage to property value. The ratio is increased by a smaller down payment. 

High-ratio mortgages come with a mandatory mortgage default insurance payment, otherwise known as CMHC insurance. In addition to the costs of this mandatory insurance, this loan type also has the maximum amortization period set at 25 years according to Canadia’s amortization rules.

A low-ratio mortgage on the other hand is one where a down payment of at least 20% is made. On top of saving money on default mortgage insurance, the amortization period for this loan type can be extended up to 30 years. So, in order to access maximum amortization mortgage canada, a down payment of at least 20% is required.

Eligibility Criteria for a 30-Year Mortgage

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

Firstly, the credit score plays a pivotal role in determining the 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 over the life of your mortgage. 

The debt-income-ratio of an individual is also taken into account. This ratio is a measure of a person’s total debt obligations in relation to their income. A lower debt-ratio indicates that the person has a greater percentage of their income available for mortgage payments.

Choosing the mortgage term best for your situation

A longer amortization period may not always be the best call. While it may decrease your monthly payments, it significantly raises total interest payable overall. 

So, is a 30-year mortgage a bad idea? Not necessarily. It is important to examine your finances, particularly in the long term before making a decision. If you are still at odds, consulting with a mortgage broker might help you get all the clarity you need.

30-Year Mortgage vs. 20-Year Mortgage 

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

	20-year mortgage	30-year mortgage
Min. down payment	$55,200	$160,000
Interest rate	5.24%	5.99%
Monthly payment	$5,191	$3,803
Total interest	$471,223	$729,033
Total mortgage amount	$774,592	$640,000

30-Year Mortgage vs. 25-Year Mortgage 

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

	25-year mortgage	30-year mortgage
Min. down payment	$55,200	$160,000
Interest rate	5.24%	5.99%
Monthly payment	$4,611	$3,803
Total interest	$535,016	$729,033
Total mortgage amount	$774,592	$640,000

Difference in Interest Rates

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

FAQ

Final Thoughts

There are many pros to opting for a 30-year mortgage, but your eligibility and whether or not this is the best option for you will ultimately depend on your financial situation. Between the mandatory low-ratio mortgage, the higher interest rates, and the overall larger interest payments over time, mortgages with longer amortization periods are not for everybody. To get a better sense of whether or not a mortgage with a longer amortization period is right for you, contact one of our mortgage experts today!

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