Mortgage Basics

Should You Get a 30-Year Mortgage in Canada?

Should You Get a 30-Year Mortgage in Canada?
Written by
  • Ashley Howard
| 20 October 2023
Reviewed, 27 October 2023
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    Buying a home is a significant financial decision, especially in the face of rising real estate prices. In Canada, where the average selling price for all home types has reached record highs, many buyers are looking for ways to make their mortgage payments more manageable. 

    One option that buyers can consider is a 30-year mortgage. This post will explore the pros and cons of opting for a 30-year mortgage in Canada and help you determine if it’s the right choice.

    Key Takeaways

    • A 30-year mortgage refers to the amortization or the time it will take to fully repay the loan.
    • A mortgage with a longer amortization will have a lower monthly mortgage payment. However, it comes at the cost of paying more interest over the life of the loan when compared to shorter amortizations. 
    • A 30-year mortgage can help ease the financial pressure of higher interest rates.

    Understanding 25- vs. 30-Year Mortgages

    A 30-year mortgage differs from other mortgages primarily in the length of the amortization (the number of years it will take to pay off the mortgage) and the down payment requirements. While most mortgages have a 25-year amortization, a 30-year amortization allows buyers to spread their debt over 5 extra years.

    Mortgages amortized over 30 years are considered uninsured mortgages, meaning buyers must have a down payment of at least 20% before obtaining a mortgage with a 30-year amortization. In contrast, the minimum down payment required for a 25-year mortgage depends on the price of the home and can range from as low as 5%. The borrower must still meet the mortgage regulator’s other down payment requirements, but the percentage can vary.

    Additionally, mortgages with an amortization period of 30 years are no longer eligible for mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC). This means that buyers must have a mortgage of 25 years or less to qualify for mortgage default insurance, which protects lenders from default.

    Pros and Cons of a 30-Year Mortgage

    Opting for a 30-year mortgage has its advantages and disadvantages. Let’s explore both sides of the equation:

    Pros of a 30-Year Mortgage

    • Lower Monthly Payments: By spreading your mortgage payments over a longer period, you can reduce your monthly payments. This can give you more financial flexibility, making your mortgage payments more affordable.
    • Higher Purchase Price: With lower monthly payments, you may qualify for a higher purchase price or mortgage amount. This can be especially beneficial in hot real estate markets where prices are high.
    • Increased Cash Flow: Lower monthly payments can free up extra cash in your budget, allowing you to use the funds for other financial goals, investments or expenses. This can be particularly advantageous if you have other financial priorities or want more monthly disposable income.

    Cons of a 30-Year Mortgage

    • Higher Total Interest Paid: A 30-year mortgage may provide lower monthly payments, but it also means that you will pay more interest over the life of the loan. An extended repayment period results in a higher overall cost of borrowing than shorter-term mortgages.
    • Limited Mortgage Default Insurance Options: As mentioned earlier, 30-year mortgages are no longer eligible for mortgage default insurance from CMHC. This can impact the interest rate on your mortgage and potentially result in higher borrowing costs.
    • Longer Debt Repayment Period: Opting for a 30-year mortgage means committing to a longer debt repayment period. This can delay your ability to become mortgage-free and may limit your financial freedom in the long run.

    Is a 30-Year Mortgage Right for You?

    Deciding whether to get a 30-year mortgage depends on your financial situation and goals. Here are a few factors to consider when making this decision:

    • Affordability: Assess your current financial situation and determine if you can comfortably afford the monthly payments of a 30-year mortgage. Consider your income, expenses, and other financial obligations to ensure the mortgage payments fit your budget.
    • Long-Term Financial Goals: Evaluate your long-term financial goals and how a 30-year mortgage aligns with them. If becoming debt-free sooner is your priority, a shorter amortization may be a better option. On the other hand, if you value lower monthly payments and increased cash flow, a 30-year mortgage might be more suitable.
    • Interest Rates: Compare the interest rates offered for different mortgage terms, including both 25-year and 30-year mortgage amortizations. Consider the potential impact on your overall borrowing costs and determine if the interest rate difference justifies the extended repayment period.
    • Market Conditions: Take into account the current real estate market conditions and trends in your area. A 30-year mortgage may help you qualify for a home in your desired location if prices are high. However, keep in mind the potential risks of overextending yourself financially and ensure that you can comfortably afford the mortgage payments in the long run.

    Frequently Asked Questions

    Can I choose more than a 30-year amortization for a mortgage in Canada?

    The maximum amortization in Canada for a personal mortgage is 40 years. However, these are typically at subprime and private lenders. Most prime lenders only offer amortizations of up to 25 or 30 years.

    If interest rates are high, should I get a 30-year mortgage?

    A longer amortization can help make mortgage payments more affordable when interest rates are high. Consider the financial impact of paying more interest over a longer period when determining if going with a longer amortization is worth the short-term benefits. Choosing the most suitable amortization will be a personal choice based on your financial situation and short and long-term goals.

    When is a 30-year amortization most suitable?

    30-year amortizations are most suitable for investment properties and refinance where you may want to take advantage of the Smith Manoeuver,  access equity in your home, or need the cash flow to improve your current financial situation. It may also make sense if you are incorporated and will guarantee the mortgage through or for your corporation.

    Thinking About A 30-Year Mortgage? Contact A Mortgage Pro Today. 

    A 30-year mortgage can be a suitable option for Canadian home buyers looking for more flexibility in their budget and more manageable mortgage payments. However, it’s important to consider both the advantages and disadvantages of a 30-year amortization before making a decision. Assess your financial situation, long-term goals, and market conditions to determine if a 30-year mortgage aligns with your needs and priorities. Remember, consulting with our knowledgeable and licensed mortgage professional can provide you with valuable insights and guidance tailored to your specific circumstances.