30 Year Amortizations Now Available

The landscape of home ownership in Canada is evolving, and recent policy changes reflect an effort to make it more attainable, particularly for first-time homebuyers. Starting on August 1, 2024, the first announcement from the federal government was that it would allow lenders to offer 30-year amortization periods on insured mortgages for newly built homes. This was followed by a second announcement that starting on December 15, 2024, 30-year amortization periods would be available to all first-time homebuyers. The goal is to ease the financial burden of monthly mortgage payments and increase housing affordability.

A 30-year amortization mortgage spreads the repayment of a home loan over three decades, resulting in lower monthly payments compared to the traditional 25-year amortization. While this extends the life of the mortgage, making it a longer financial commitment, it also makes the dream of owning a home more achievable for many Canadians.

What is a 30 Year Amortization?

A 30-year amortization refers to the process of paying off a mortgage over a period of 30 years through regular monthly payments. Amortization is the spreading out of loan payments over time, allowing borrowers to handle a large financial obligation, such as a home mortgage, in smaller, more manageable instalments. This extended timeline results in lower monthly payments compared to shorter amortization periods, such as the traditional 25-year amortization. The principal and interest are recalculated so that the total loan amount, including interest, is divided into equal payments spread over three decades.

25 Year vs. 30 Year Amortization

Advantages of a 30 Year Amortization in Canada

• A 30 year mortgage in Canada offers a reduction in monthly mortgage payments. By spreading the loan repayment over a more extended period, borrowers can make smaller, more manageable payments each month.
• The lower monthly payments can make home ownership more accessible, enabling more people to enter the housing market.
• With lower monthly payments, homeowners may have additional funds available for other financial commitments, savings or investments.

Disadvantages of a 30 Year Amortization in Canada

• Extending the amortization period increases the total amount of interest paid over the life of the mortgage. Although the monthly payments are lower, the interest accrues for a longer period, resulting in a higher cumulative interest payment.
• A 30-year mortgage means a longer financial commitment, tying borrowers to their mortgage for an additional five years compared to a 25-year amortization.
• While longer amortizations offer reduced monthly payments, they may come with slightly higher interest rates than shorter-term mortgages.

30 Year Amortizations Intended to Stimulate Development

The first iteration of the policy change was explicitly designed for first-time homebuyers with a high-ratio mortgage, who opted for newly constructed homes. This supported two critical objectives: making home ownership more accessible for younger generations and stimulating the construction of new housing. By targeting new builds, the government incentivized increased residential construction, thereby addressing the housing supply shortage in many Canadian cities.

Can You Get a 30 Year Mortgage in Canada?

Yes, you can now get a 30 year mortgage in Canada, thanks to recent changes in federal policy aimed at making home ownership more accessible. To qualify for a 30 year amortization in Canada, you must:

• Be a first-time homebuyer. This means you or your partner have never purchased a home before and have not occupied a home as a principal residence that either you or your current spouse or common-law partner have owned in the last four years.
• Be purchasing a newly constructed home, meaning it has not been previously occupied for residential purposes. This will change on December 15, 2024, when 30-year amortizations will be extend to all first-time buyers.
• Have mortgage insurance for a high-ratio mortgage (with a down payment of less than 20 per cent of the purchase price). This will change on December 15, 2024, when the 30-year amortization will be available to conventional and high-ratio mortgage holders.
• All other eligibility criteria for government-guaranteed mortgage insurance will still apply.

The Canadian government’s decision to allow 30-year amortization periods on insured mortgages signals a proactive approach to addressing the country’s housing affordability crisis. By providing longer amortization options, the policy aims to lower monthly mortgage payments and make entry into home ownership more accessible for first-time buyers while encouraging new home construction to boost housing supply.