Canada introduces 30-year amortization for insured mortgages — sort of

By Mark Hrycenko
Posted April 13, 2024

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This change only applies to a very limited group of first-time home buyers.

The Government of Canada has announced changes to mortgage amortization rules, which will take effect on August 1, 2024. Essentially, the maximum amortization period for insured mortgages has been extended from 25 years to 30 years. However, this new option is only available under very specific circumstances.

To qualify for a 30-year insured mortgage, you must be a first-time home buyer purchasing a newly built home valued at under $1M, with less than a 20% down payment. So, while this is a meaningful policy shift, the widespread impact is minimal.

Let’s take a deeper look at each criterion.

In Canada, any home purchased under $1M with less than a 20% down payment requires mortgage loan insurance. This insurance protects the lender in case the borrower defaults. Mortgage loan insurance is not available on homes that cost $1M or more.

Next, the definition of a first-time home buyer can be a bit confusing. Basically, if you haven’t owned or jointly owned a home that you lived in during the current calendar year or the preceding four calendar years, you are considered a first-time home buyer.

Lastly, the newly built home requirement likely refers to brand-new, never-occupied, pre-construction, and under-construction homes. More information is coming soon to clarify

This change will allow certain buyers to qualify for a larger mortgage and, by extension, a more expensive home, but, the incremental cost will be significant. In some cases, a 30-year term may allow borderline buyers to qualify for a mortgage.

Consider the following examples.

Example No. 1.

Let’s say you are a first-time home buyer purchasing a $500,000 home with a 10% down payment, 25-year amortization, and 5% interest rate. Your monthly payment, including mortgage loan insurance, totals approximately $2,698. Over the 25-year term, you’ll pay $345,556 in interest.

Example No. 2.

Now, extend the amortization to 30 years. Your monthly payment decreases by about $222 to $2,476, but the total interest over the term rises to $427,430. Those extra five years will cost you an additional $81,874 in interest — a significant sum and a substantial expense for the extended term.

Conventional wisdom would argue against taking advantage of a 30-year mortgage, even if you meet the specific conditions — the cost is just too high. Nevertheless, as Canada’s housing market becomes increasingly expensive, people will explore any mechanism to make life more manageable day-to-day. Depending on personal circumstances, there may be an argument for considering this option.

And what’s the impact on house prices? Likely minimal, with a slight increase of 1%-2% in certain ‘lower-priced’ regions, such as Alberta.

Ultimately, this change will affect a small group of buyers without causing disruption to the mortgage industry or the real estate market.