The Canadian housing market is constantly evolving, and recent announcements regarding the expansion of 30-year amortization options have sparked a lot of questions among homebuyers.
We sat down with Adam Coté, a Mortgage Agent from Referral Mortgages in Ottawa, who works closely with the team here at Paul Rushforth, to discuss the changes and break down what they mean to you.
Whether you’re a first-time homebuyer or looking to make a move, understanding these changes is crucial.
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What is Amortization?
Amortization is the length of time it takes to pay off your mortgage in full, or, as Adam explains, it is “the lifespan of your mortgage.”
A longer amortization period generally leads to lower monthly mortgage payments because repayment is stretched over a longer timeframe.
When you make a mortgage payment, you are paying a portion of the principal (the original amount borrowed) and a portion of interest. But it’s important to note that the terms of your mortgage, the interest rate and payment conditions are not set in stone for the entirety of the mortgage loan period, and your amortization can change.
“A common misconception about amortization is that it’s a fixed, unchanging number,” says Adam. “In reality, depending on your agreement, you have the opportunity to renegotiate the terms and adjust the amortization period when your mortgage is coming due for renewal.”
Additionally, Adam shares that borrowers can naturally “shorten their amortization at any point in time by making a prepayment on the mortgage.” This extra payment will “reduce the balance owing on the mortgage and save on interest while shortening the amortization remaining of your mortgage.”
Mortgage Amortization Changes in Canada
Recently, the Canadian government introduced new regulations that affect mortgage amortization periods.
These changes are being rolled out in stages this year and are offered by all federally regulated banks and financial institutions that provide mortgage loans.
Previous Amortization Regulations
Before the changes, Canadian regulations for amortization periods included:
- 25-Year Amortization: The maximum amortization period available for homebuyers who put less than 20% down on their homes.
- 30-Year Amortization: A longer option extended only to homebuyers who put down 20% or more for a down payment.
These rules applied to first-time homebuyers and those who had previously purchased a home.
“If you wanted a 30-year amortization as a first-time homebuyer, you had to put 20% down,” says Adam, adding that first-time homebuyers often struggled to accumulate a large down payment and found themselves restricted to a 25-year amortization period.
New Amortization Changes for 2024
The new rules expand who is eligible for 30-year amortizations.
- New Build Homes: As of August 1, 2024, first-time homebuyers purchasing new construction homes became eligible for 30-year amortizations, even if their down payment is less than 20%. On December 15, 2024, this 30-year option opens up to any homebuyer purchasing a new construction home with a down payment of less than 20% (regardless of whether or not they are first-time buyers).
- Resale Homes: As of December 15, 2024, first-time homebuyers purchasing resale properties will be eligible for 30-year amortization periods, even if their down payment is less than 20%.
Although the initial changes were designed to boost new construction and increase the housing supply, Adam pointed out that the federal government “responded to public feedback and expanded the rules to give first-time homebuyers access to 30-year amortizations on resale properties as of December 15th, offering more choices to those who don’t want to wait for new construction.”
How 30-Year Amortization Works
A 30-year amortization is an attractive option for homebuyers because, as noted earlier, the payments are lower and spread out over a longer period of time.
The longer amortization also helps with qualifying for a mortgage. However, there are many things to consider in order to understand how a 30-year amortization loan in Canada works.
First, the longer the loan, the more interest you’ll pay. Second, interest rates will vary depending on the terms and length of your loan and whether or not you are required to pay insurance. Suppose you cannot put down 20%.
In that case, your loan is considered a “high-ratio mortgage,” requiring you to purchase default insurance. One of the default insurers you might recognize is Canada Mortgage and Housing Corporation (CMHC) insurance.
Using a $450,000 mortgage with a 4.5% interest rate and five-year term, here’s a comparison of the interest paid over a 25-year versus a 30-year amortization:
| 25-YEAR AMORTIZATION | 30-YEAR-AMORTIZATION | |
| Principal paid | $450,000 | $450,000 |
| Interest paid | $297,188.49 | $366,829.20 |
| Total mortgage cost | $747,188.49 | $816,929.20 |
Table source: Forbes Advisor Canada, ‘Feds Announce Mortgage Reform: Insured Mortgage Amortization’
As you can see, a 30-year amortization results in nearly $70,000 more interest paid than a 25-year term. Although interest rates fluctuate throughout the mortgage term, this demonstrates how a longer amortization can add to a homeowner’s overall debt.
Advantages of a 30-Year Amortization
1. Lower Monthly Payments
“A big benefit of a higher amortization is lower mortgage payments,” says Adam, and this can “free up cash flow for other expenses or investments.”
2. Easier Qualification for First-Time Buyers
Adam further explains that “lower mortgage payments make it easier for us to qualify first-time home buyers.” They reduce the strain on a borrower’s finances and improve their overall profile.
3. Increased Purchasing Power
The lower monthly payments of a longer amortization will also allow borrowers to qualify for larger mortgage loans, enabling them to afford homes that might have been out of reach with a shorter term.
Younger Canadians and “single-income earners, who are often hit hardest by affordability challenges, stand to benefit quite a bit from the 30-year amortization option,” says Adam. Additionally, the updated rules for qualifying for a 30-year amortization with down payments of less than 20% further extend the purchasing power of first-time buyers and new-build purchasers.
4. Flexibility to Shorten Amortization
Choosing a 30-year amortization doesn’t lock you into that timeframe. Adam explains that you “have the flexibility to adapt your mortgage repayment strategy during term renegotiation periods and as your financial situation evolves.”
Disadvantages of a 30-Year Amortization
1. Increased Interest Costs
Opting for a longer 30-year amortization means more years of interest accumulation, leading to a higher total interest cost over the life of the mortgage.
2. Potential for Higher Interest and Insurance Rates
Adam points out that “extending amortization to 30 years comes with trade-offs. While buyers will enjoy lower monthly payments, they’ll likely pay a higher interest rate and a higher premium for insured mortgages,” and these added costs ultimately add to the overall borrowing costs.
3. Temptation to Overextend
The allure of a lower monthly mortgage payment might tempt buyers to purchase a more expensive property than they can comfortably afford in the long run.
Exposing yourself to this kind of financial strain is never a good idea, especially if interest rates climb or unexpected expenses arise.
Turn to the Ottawa real estate agents at Paul Rushforth and their trusted mortgage partners at Referral Mortgages for guidance in weighing the pros and cons of the available options and for help securing the best mortgage.
How the 30-Year Amortization Might Affect the Canadian Real Estate Landscape
In light of the new changes, there are a few things to keep an eye on.
1. Boost in Housing Demand
Lowered monthly mortgage payments will make homeownership more accessible to a wide range of buyers. This could lead to a surge in demand, especially from first-time buyers who were previously priced out of the market. And with any increase in demand, especially given Ottawa’s housing supply shortage, Adam feels this influx of buyers “might unintentionally drive up home prices.”
2. Impact on New Construction
Offering 30-year mortgage amortizations for newly built homes is clearly an effort by the government to incentivize new construction. The new regulations may stimulate activity in this segment, but Adam notes the lengthy timelines associated with new construction projects and believes there will be “a continued focus on the resale market.”
3. Pressure on Interest Rates and Insurance Premiums
As mentioned, longer amortization periods and smaller down payments could translate into higher interest rates and premiums for mortgage default insurance. This is due to the increased risk associated with these types of mortgages.
4. Market Timing
The anticipation of lower monthly payments may lead some buyers to delay their purchase, hoping to take advantage of the new rules when they come into effect in December. However, this wait-and-see approach could result in mistimed decisions, as the market may flood with buyers once the policy takes effect.
That’s why it’s essential to have a real estate expert from Paul Rushforth on your side—someone who closely monitors market trends in the specific Ottawa neighbourhood you’re interested in. With our local expertise, we’ll help you navigate timing and avoid missing opportunities in a fast-changing market.
The Importance of Expert Guidance
Buying a home is a significant milestone, and it’s natural to have questions about the new regulations and the 30-year amortization option.
Paul Rushforth Real Estate agents partner with expert financial partners like Adam to help you every step of the way, providing the expertise and support you need to make a confident mortgage decision.
