30-Year Mortgages in Canada

A 30-year mortgage in Canada is a type of home loan that has an amortization period of 30 years. What this means is that your monthly mortgage payments will be spread out over 30 years, with a portion going towards paying off the principal of your loan, and a portion going towards interest. The longer the amortization period of a mortgage, the smaller each of your mortgage payments will have to be.

A 30-year amortization is considered to be longer than normal. That’s because most mortgages in Canada have an amortization of 25 years, a requirement by the CMHC for insured mortgages. Since a 30-year mortgage has payments spread out over a longer period of time, it can help those who want to keep their monthly payments low.

It’s important to remember that a mortgage’s amortization period is different from a mortgage’s term. The difference between a mortgage term vs. mortgage amortization is that term is how long certain characteristics of your mortgage are valid for, while amortization is how long it will take to fully pay off your mortgage loan.

As an example, your mortgage rate might be fixed for the duration of your term. Once your term is over, you will need to renew your mortgage for another term. On the other hand, your loan is amortized over a certain amortization period, which is different from the term. Your amortization period is how long it would take to pay off your loan if you made the same payment each month and didn’t make any prepayments. A typical amortization period in Canada is 25 years. This means that it would take 25 years to pay off your mortgage if you make the same payment each month and don’t make any mortgage prepayments.

For a 30-year mortgage, the amortization period is 30 years. The mortgage term of a 30-year mortgage will be less than 30 years. A popular mortgage term option in Canada is 5 years.

What is the longest amortization period in Canada?

The maximum amortization period in Canada is 35 years for residential mortgages. However, some CMHC-insured commercial mortgages may have a maximum amortization of up to 50 years! That's a benefit that the CMHC rolled out as part of their multi-unit mortgage loan (MLI) Select offering. Otherwise, most commercial mortgages have a maximum amortization of 40 years.

If you’re thinking about taking out a 30-year mortgage, it’s important to weigh the pros and cons to decide if this is the right type of mortgage for you. The main reasons why someone would want to get a 30-year mortgage have to do with affordability. The pros of a 30-year mortgage include the following:

A 30-year mortgage reduces the amount that you have to pay for each mortgage payment. This means that the monthly payments are lower than they would be with a shorter mortgage amortization, giving you some breathing room in your budget. Having to pay less money each month frees up your money for other things, such as investing in the stock market or making home renovations that add value to your home.

When you get a mortgage in Canada, one way that lenders determine your mortgage eligibility is by looking at your debt service ratios. The two main ratios, gross debt service (GDS) and total debt service (TDS), look at how your income compares to your debt and other monthly payments. Another factor is the stress test, which looks to see if you can still afford your mortgage payments if interest rates rise.

By reducing your monthly mortgage payments with a longer amortization period, you’ll be able to afford a larger mortgage. That’s because your debt service ratios, as well as your total monthly expenses, will be lowered when you spread out your mortgage payments over a longer period of time.

You can always shorten your mortgage amortization by making mortgage prepayments, up to your lender’s annual limits, if you have extra cash and you want to pay off your mortgage early. It’s easier to have a longer amortization and make prepayments when needed than to have a shorter amortization and needing to extend it.

One thing to keep in mind is mortgage prepayment penalties if you exceed your lender’s limits. However, you can avoid it by refinancing or prepaying your mortgage when it comes up for renewal at the end of your term, or by getting an open mortgage.

Since all 30-year mortgages are uninsured, you also won’t be limited by CMHC rules for insured mortgages. This means you won’t be capped to a $1 million purchase price limit.

The main con to getting a mortgage with a longer amortization is that you’ll be paying more interest over the life of your loan. The main disadvantages of a 30-year mortgage are:

Paying interest for 30 years means that you are paying substantially more in interest than you would with a mortgage with a shorter amortization. Although your monthly payments will be smaller, they will add up to a larger total amount of money paid over the life of the loan. That’s because interest is charged on the unpaid principal balance of your loan, and the longer it takes to pay off the loan, the more interest you will pay.

It’s common for 30-year mortgages to have higher interest rates compared to 25-year mortgages. This means that in addition to paying interest for a longer period of time, you’ll also be paying interest at a higher rate. One reason for this is that 30-year mortgages are uninsured. In comparison, high-ratio mortgages, which are those that have a mortgage down payment of less than 20% and are insured, usually have the lowest mortgage rates. That’s because insured mortgages reduce the risk for mortgage lenders, allowing them to offer lower rates. You’ll often see 30-year mortgage rates being higher, even with all else being equal.

A 30-year mortgage also means that it will take you longer to build equity in your home as your mortgage principal will take longer to be paid down. If you need to sell or refinance before the mortgage is paid off, you may not have as much equity to work with than if you had a shorter mortgage amortization.

It’s important to run the numbers to see whether or not a 30-year mortgage is right for you. A mortgage amortization calculator can be used to test out different scenarios. Let’s take a look at a $500,000 mortgage and compare mortgage payments and interest for a 25-year vs. 30-year mortgage, assuming that everything besides the amortization period is the same.

Example of a 25-Year vs. 30-Year Mortgage

This example assumes that the mortgage rate stays the same. Based on a 5% mortgage rate for a $500,000 mortgage, this example tells us that:

• A 30-year mortgage would have a monthly payment that is $240 lower than a 25-year mortgage.
• The lifetime interest cost is $88,236 more with a 30-year mortgage vs. a 25-year mortgage.

In other words, you’ll be paying an extra $88,236 in interest in order to save $240 per month! Looking at this example another way, the monthly payment is 8% lower with a 30-year mortgage, but you will end up paying 24% more in interest over the life of the loan. If you can afford the higher monthly payment of a 25-year mortgage, you’ll save a lot of money in the long run.