This piece was originally published on August 17, 2020, and was updated on August 17, 2023.
A mortgage is a major financial commitment; one that you’ll likely be paying off for decades. While your current interest rate may change several times throughout the lifetime of your mortgage as your term matures and you sign up for a new one, the overall length of your mortgage loan – called your amortization period – typically stays the same, unless you refinance.
In Canada, the maximum length of time for an amortization period for a new mortgage is capped at 30 years – but whether or not a borrower can carry their mortgage for this long depends on a few factors. Let’s take a look at when it’s possible to get a 30-year mortgage, and whether it’s the right fit for you.
Can you get a 30-year mortgage in Canada?
While 30-year mortgages do exist in Canada, many mortgages – especially for first-time home buyers – are limited to a 25-year amortization period. This is because mortgages that require CMHC insurance coverage have a 25-year maximum.
Keep in mind that a longer amortization period is not always better. While taking a long time to pay off your mortgage will reduce your monthly payments, it will also increase the amount of overall interest you will pay over time. It’s important to consider both your current situation as well as your long-term finances. We recommend that you use our amortization calculator to test out different amortization period scenarios so you can get a sense of what the costs would be.
In order to get a 30-year mortgage in Canada, you’ll need to have what’s known as a low-ratio mortgage, which won’t be subject to the CMHC rules.
Also read: Should I extend my mortgage amortization?
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High-ratio vs. low-ratio mortgages
Two common terms used to describe 25- and 30-year mortgages in Canada are whether they’re high-ratio, or low-ratio. The “ratio” portion refers to the amount of debt a borrower has taken on in the mortgage: the mortgage to property value ratio.
A high-ratio mortgage is when the borrower pays less than 20% down on their home’s purchase price, meaning they’ve needed to borrow a larger proportion of their mortgage, and have less equity in the home.
Because this mortgage type poses a greater risk to the lender, high-ratio mortgage borrowers are also required to pay for mortgage default insurance, also commonly known as CMHC insurance. This coverage is legally mandated but will restrict the borrower to a 25-year amortization period.
However, the trade-off here is that this insurance coverage then eases the risk for lenders; should the borrower fail to make their mortgage payments, the money is then backstopped by the CMHC. As a result, insured mortgage rates tend to be a little bit lower than those that don’t require insurance. For example, the best five-year fixed insured mortgage rate available today is 5.25%, compared to 5.49% for an uninsured option.
A low-ratio mortgage is a mortgage with a down payment of at least 20%. In addition to saving the cost of CMHC insurance premiums, a low-ratio mortgage also gives borrowers the option of an amortization period of up to 30 years.
How to get a 30-year mortgage in Canada
Here are the steps you’ll need to take to get a 30-year mortgage in Canada.
Save for your down payment: You’ll need enough cash for a 20% down payment, plus the closing costs of buying your new home. Depending on location, closing costs can be between 1% and 5% of the total purchase price.
Find a home in your price range: Once you’ve saved diligently, you’ll need to figure out how much you can afford. Use our mortgage affordability calculator to work out how much you can afford to buy with your current savings making up at least a 20% deposit.
Find a mortgage provider: While most mortgage providers will offer non-insured, 30-year mortgages, you’ll still need to find the best product for you. With a longer amortization period, your mortgage rate will be especially important, so be sure to compare mortgage rates between lenders.
Is it possible to extend my amortization longer than 30 years?
The short answer is yes – but it depends on your financial situation and the discretion of your lender. While brand-new mortgages are capped at either 25 or 30 years, once the mortgage contract is in place, your lender may offer you the opportunity to temporarily extend your amortization. This is generally used as an emergency tactic to help alleviate payment stress in scenarios where the borrower is at risk of defaulting on their mortgage payments.
Extending amortizations beyond 30 years has been a growing trend over the past 18 months, following the Bank of Canada’s hiking cycle; with each rate increase, borrowers with variable-rate mortgages and fixed payment schedules saw less of their monthly payment go toward their principal debt, and more toward interest. Increasingly, these borrowers started to hit their “trigger rate” – the point at which their payment didn’t contribute to their principal debt at all, and only covered interest.
To address this, lenders have been working with affected borrowers, extending their amortizations to rebalance their payments – an approach endorsed by the Financial Consumer Agency of Canada. However, these borrowers will eventually need to return to their original amortization schedule upon renewal, and will face rising payments once more at that time.
Carrying your mortgage for a longer period of time, while reducing your monthly payment obligations, will also cost you more in interest payments over time. A study by Ratehub.ca that looked at the theoretical impact of extra-long amortizations, found that increasing from a 25-year mortgage to a 30-year one reduced monthly payments on a $500,000* mortgage from $3,161 to $2,934, but increased the amount of interest paid to $556,153 from $448,196 – a difference of $107,957!
The bottom line
You can get a 30-year mortgage in Canada, but you will need at least a 20% deposit in order to avoid having to get CMHC insurance. While a 30-year mortgage might seem like a more affordable option, it can cost you more over time and will require more money up front.
It’s important to consider all of your options before you commit to a 30-year mortgage. Speak to a mortgage broker and test out different amortization schedule scenarios on our amortization calculator if you’re unsure. Mortgage broker consultations are free, and they can offer expert advice on your personal situation. They may also be able to find you a better mortgage rate if you’re ready to buy.