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The pros and cons of a 35-year mortgage

This piece was originally published on October 22, 2021, and was updated on April 26, 2023. 

If you want to buy a house in Canada, you’ll most likely need to join the thousands of Canadians that apply for a mortgage every year. During the application process, you’ll make many choices, including how much cash to use as a down payment, whether you want a variable or fixed mortgage rate, and the length of time you’d like to pay down your mortgage (called your amortization period).

All of these factors are important, but the length of your mortgage is critical because it affects your monthly payment and how much interest you’ll pay over the life of your loan. Mortgage amortization periods can be as short as ten years, but most Canadians opt for an amortization period between 20 and 30 years in length.

That said, in Canada, anyone with a “low ratio” mortgage may be eligible for a mortgage with an even more extended amortization period. 

What is a low-ratio mortgage in Canada?

When applying for a mortgage in Canada, you must have a down payment of at least 5%, but many people choose larger down payments. If your down payment is 20% of the purchase price or less, your mortgage is considered high ratio, and you’ll have to buy mortgage default insurance. Mortgage default insurance (also known as CMHC insurance) protects your lender if you default on your mortgage. If you have a high-ratio mortgage, the maximum amortization period in Canada is 25 years.

For mortgages with a 20% or larger down payment (also known as low-ratio mortgages), you don’t need mortgage default insurance, and you can choose a more extended amortization period.

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What is the longest mortgage term?

The average new mortgage in Canada has a 25-year amortization period, but that’s not the only option. Canadians have the option of choosing up to a 35-year amortization for their mortgages. The maximum amortization period used to be 40 years, but in 2008 the federal government tightened a variety of mortgage regulations, eliminating the 40-year mortgage. So today, the most extended mortgage term that a Canadian can choose is 35 years.

The pros of a 35-year mortgage

If you have a 20% or larger down payment, a 35-year mortgage is an option for you, but is it the right option? Here is the pro of choosing a 35-year mortgage:

  • Lower monthly payment: Extending your mortgage’s amortization period has the benefit of lowering your overall monthly payment because you can spread your payments out over a more extended period. For example, a $500,000 25-year mortgage with an interest rate of 1.90% has a monthly payment of $2,093. However, that same mortgage with a 35-year amortization costs $1,629.

The cons of a 35-year mortgage

While a 35-year mortgage can help reduce your monthly payments, this option has some cons, including:

  • More interest paid long-term: The downside of extending your mortgage term over a lengthier period is that you’ll pay more interest over the life of your mortgage. In the example we used above, a 25-year mortgage will cost the homeowner $127,962 in interest over the life of the mortgage. However, if you extend your amortization to 35 years, that same mortgage will cost the homeowner $184,125.
  • Not offered by “A” lenders: In addition, “A” lenders like banks and credit unions rarely offer 35-year mortgages. So if you’re interested in a 35-year mortgage, you’ll need to work with an alternative lender. These lenders are credible and safe but specialize in unique mortgages and may not offer the lowest possible interest rates.

Is a 35-year mortgage worth it? 

You can get a 35-year mortgage in Canada, but should you? 35-year mortgages have the benefit of spreading your mortgage payments out over a more extended period, lowering your overall monthly cost. That said, they are only available to Canadians with a down payment of 20% or higher, and the more extended amortization period means you’ll pay more interest over the life of your loan.

In addition, “A” lenders like banks and credit units do not offer 35-year mortgages, so you’ll need to work with a mortgage broker to find an alternative lender that provides this type of mortgage. There is no guarantee that an alternative lender will offer you the same low-interest rates that an A lender will offer, so in the end, the lower payments associated with a more extended amortization period may be offset by a higher interest rate.

The bottom line 

If you’re interested in a 35-year mortgage, we recommend working with a mortgage broker to determine whether it makes financial sense and running the numbers to ensure it is the best choice for your mortgage. We also suggest you use our amortization calculator to test out different scenarios to help determine what amortization schedule works best for you. 

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