Should you get a 30-year mortgage? 

In the city of Toronto, the average selling price for all home types reached $1.07 million in January 2022, according to figures from the Toronto Regional Real Estate Board. In Vancouver, the benchmark price for all properties jumped to $1.25 million, an 18% increase from the year before, according to the Real Estate Board of Greater Vancouver. 

With prices like these, many buyers face mortgage payments that exceed what they can comfortably afford, even with a 25-year mortgage. By taking out a 30-year mortgage, buyers can stretch the limits of what they’re able to qualify for and create some extra wiggle room in their budget through smaller mortgage payments. 

“What I’m finding is that people are doing it just to qualify for [the homes] they want,” says Micah Verceles, a Vancouver-based mortgage broker. 

But what does getting a 30-year mortgage actually mean for buyers? We break it down below.

25- versus 30-year mortgages

A 30-year mortgage works a little differently than other mortgage products, including those with 25-year amortizations (the number of years it will take to pay off the loan). The principal difference is, of course, the length of the amortization, but you might also be in for more rounds of mortgage renewals. The amount of time your mortgage contract is in effect is called a “term.” Terms can vary from a few months to several years, but they typically won’t be longer than 10 years. This means you will have to renew your mortgage several times before the amortization is up. 

Mortgages amortized over 30 years are subject to different down payment rules. All 30-year mortgages are low-ratio mortgages, meaning a buyer must have a down payment of at least 20% to obtain one (mortgages obtained with less than a 20% down payment are called high-ratio mortgages). The minimum down payment needed for 25-year mortgages depends on the price of the home; there is no strict 20% rule, but the borrower must still meet Canada’s other down payment requirements. That means you might be required to have a down payment of as low as 5%, for homes under $500,000, and as high as 20%, for homes valued at $1 million or more. 

Finally, buyers must have a mortgage or 25 years or less in order to obtain mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC)—an added fee used to protect mortgage lenders from default. Thirty-year mortgages can’t be insured by CMHC, which can impact the interest rate on your mortgage, as we explain below.

The pros and cons of a 30-year mortgage

Signing up for a 30-year mortgage allows a buyer to stretch their mortgage payments over a longer period of time. “You’re spreading your debt over five extra years [compared to 25-year mortgages]. That usually gets you a higher purchase price or mortgage amount that’s needed in the big markets,” explains Verceles.

On a home selling for $748,450 (the average Canadian home price as of January 2022), a buyer who puts 20% down and takes out a 30-year mortgage at a five-year fixed rate of 2.69% will pay $2,421 a month on their mortgage. (You can run the calculations yourself using a mortgage payment calculator.) Another buyer with the same down payment and mortgage terms but a 25-year amortization would shell out $2,739—that’s $318 more than the first buyer every month, or an extra $3,816 every year. 

At first glance, the 30-year mortgage seems like the better choice—except that the buyer would end up paying a total of $272,684 in interest over the life of the mortgage. The 25-year mortgage buyer, on the other hand, would pay $223,008 in total interest—a difference of $49,676 on the same mortgage principal. 

In Canada, a 30-year mortgage is not insurable through the CMHC, meaning a minimum 20% down payment is required. This can make it more difficult to purchase the home that you want. A 15% down payment on a $748,450 house is $112,268. At 20%, the down payment jumps to $149,690—meaning you will need to access $37,422 more.

Plus, Verceles says, lenders tend to give borrowers slightly better rates for mortgages covered through CMHC insurance, because the lender isn’t the one shouldering the risks of a default. Usually, those savings can amount to a quarter of a percent in interest, according to Verceles. 

Can you get a mortgage of more than 30 years?

In some countries, such as Japan, mortgages of 35, 40 and even 100 years—intended to be paid over multiple generations—are not unheard of.

Canada’s major lenders once offered 40-year mortgages, but that ended when the North American housing bubble burst in 2008. Shortly after that meltdown, the Department of Finance decreased the maximum amortization to 35 years, then later reduced it to 30 years. “They don’t want people to leverage themselves too far,” Verceles explains. (Some alternative lenders still offer 35- and even 40-year mortgages, albeit with steeper interest rates than a shorter mortgage from a bank.)

Despite the widespread concern about housing affordability in Canada, the Canadian government is unlikely to loosen the rules to allow 30-plus-year amortizations again, says Verceles. Interest rates are at an all-time low, and the Bank of Canada is hinting that it might need to boost rates multiple times in 2022 to offset inflation. 

“If rules are relaxed and they make it easier for people to qualify for more, that’s only going to drive prices up,” Verceles says. “That’s not what they want to do.” 

Should you get a 30-year mortgage? 

For Canadian buyers trying to purchase homes in hot markets, a 30-year mortgage might be the best way to qualify for a pricier home and to save money on regular mortgage payments. However, those short-term gains come at the cost of paying a lot more in interest over the life of the loan. Whether or not a 30-year mortgage is right for you ultimately depends on your financial situation and goals. 

Read more on mortgages:

• Understanding mortgage affordability

• A guide to mortgage calculators

• Read this before applying for the First-Time Home Buyer Incentive
• 10 must-use online housing and mortgage calculators