Amortization
Jamie David, Sr. Director of Marketing and Mortgages
Your amortization period is the length of time it takes to pay off your entire mortgage. The maximum amount of time you are given depends on how much of a down payment you make when you purchase your home. You already know that the minimum down payment you can make is 5% of the purchase price; however, if you put down anything less than 20% your maximum amortization will be 25 years, or, as of December 15, 2024, up to 30 years if you are also a first-time home buyer.
Any mortgage loan with less than a 20% down payment is considered a high-ratio mortgage and must be safeguarded with mortgage default insurance. Commonly known as CMHC insurance, the insurance premium you pay protects the lender in case you default. Because of the added risk a high-ratio mortgage carries, the lender and your mortgage insurance default provider want to ensure you can afford to repay the loan within a set period of time: no more than 25 years, to be exact, with the exception of first-time home buyers in Canada.
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If your down payment is 20% or more of the purchase price, you would take on a conventional mortgage that would no longer need mortgage default insurance; this means your maximum amortization period could be longer - up to 30 years, with most lenders. The good thing about a longer amortization period is that your monthly payments will be lower, since you are paying the mortgage off over a longer period of time. The downside to a longer amortization period is that you’ll also end up paying more interest to your lender. Let’s take a look at an example:
As you can see, the monthly mortgage payment in Scenario A is more than in Scenario B; that’s because Scenario A has less time to repay the loan. However, by giving Scenario B more time, the lender also earns more interest. In this example, Scenario B would pay nearly $34,000 more in interest than Scenario A.
To compare your own scenarios, check out Ratehub.ca's handy amortization calculator.
How to choose a mortgage amortization period
If you have at least a 20% down payment, you can choose the length of your amortization period – and it’s a personal decision. But first, look at the following charts to see which amortization periods other Canadians are choosing.
All homeowners with mortgages
Mortgages renewed in 2024
As you can see, an amortization period of 25 years was the most popular option among Canadians who renewed a mortgage in 2024. The second most popular amortization period is 11 to 20 years. It's noteworthy that the share of amortization periods of over 25 years has risen over the last couple of years, from 25% in 2022 to 29% in 2024. This implies that mortgage-holders may be extending their amortization periods to help keep up with their mortgage payments.
Mortgage amortization period rule changes over time1
On September 16, 2024, the federal government announced sweeping changes to mortgage qualification rules for first-time home buyers, as well as those purchasing newly-constructed homes.
As of December 15, 2024:
- 30-year amortizations will be available for all first-time home buyers, regardless of whether they have an insured mortgage. These extended amortizations are also available for any purchase of new construction.
- The maximum purchase price for an insured mortgage (where less than 20% down is paid) will be increased to $1.5 million, from the current $1 million.
These are some of the most impactful mortgage reforms announced since 2012, and are anticipated to increase first-time home buyers’ affordability and access to the housing market.
Learn more about these new mortgage rule changes on the Ratehub.ca blog
Prior to this, the latest mortgage rule changes were made on July 9, 2012, by former Finance Minister Jim Flaherty. At that time, he reduced the maximum amortization period for CMHC-insured mortgages to 25 years as part of efforts to decrease the amount of household debt Canadians were taking on. Here is a chart showing the changes made to mortgage rules over time:
| Until October 2006 | November 2006 | October 2008 | March 2011 | July 2012 | December 2024 | |
| Minimum Down Payment | 25% | 0% | 5% | 5% | 5% | 5% |
| Maximum Amortization | 25 years | 40 years | 35 years | 30 years | 25 years | 25 years or 30 for FTHB |
Ways to shorten your mortgage amortization period
One more thing to keep in mind is you can repay your mortgage before your amortization period is up, if you’re in the financial position to do so, because most lenders offer prepayment privileges. Prepayment privileges allow you to either increase your monthly payments or to make a lump sum payment against the loan.
Talk with your lender to find out exactly what your prepayment privileges are. If you go beyond the privileges set out by your lender, you may incur costly penalties.
Alternatives to a short mortgage amortization period
Finally, some experienced investors may choose to amortize their mortgage over a longer period of time, then take the difference between the two payments (in our example, $155 per month) and invest it for greater returns; this strategy has become more popular due to the low interest rates being offered on mortgages.
References and Notes
- TD Special Report, Department of Finance, 2012, 2008
- CREA Annual State of the Residential Housing Market in Canada, Year End 2020
- 2024 CMHC Mortgage Consumer Survey