In a significant move to make homeownership more attainable, Canada has introduced 30-year amortizations for first-time buyers and individuals purchasing newly built properties. This new policy aims to reduce monthly mortgage payments, offering a potential solution to the country’s ongoing housing affordability crisis. But while this might sound like a lifeline for many, it comes with some important considerations that potential buyers should keep in mind.
How Does the 30-Year Amortization Work?
An amortization period refers to the length of time it takes to repay your mortgage in full. By extending the standard 25-year amortization to 30 years, homeowners will see their monthly payments decrease—on average, by around $300 per month, especially in high-demand markets like Toronto and Vancouver. For many, this reduction in payments could be the difference between renting and owning, providing essential breathing room for those facing high living costs or saving for a down payment. This change aligns with similar policies seen in other G7 countries, like Switzerland, where longer amortizations have been introduced to stimulate the housing market. Ultimately, it offers immediate relief by lowering monthly payments and helping more Canadians secure a home and build equity over time.
The Hidden Cost: 24% More in Interest
While lower monthly payments sound attractive, the extended amortization period comes with a significant downside. The buyers will pay 24% more in interest over the life of their mortgage. That means while you’re paying less each month, you’ll end up paying much more in the long run. For example, let’s say you’re taking out a $500,000 mortgage. Under a 25-year amortization at a 5% interest rate, you would pay roughly $233,000 in interest. With a 30-year amortization, that interest could balloon to $289,000—an increase of $56,000 over the life of the loan.
Does This Solve the Real Issue?
While extending the amortization period may help reduce the immediate financial burden, it doesn’t address the core issue facing the housing market: high interest rates. With mortgage rates at multi-year highs, many buyers still struggle to afford a home, even with lower payments. Critics argue that while the longer amortization periods may enrich the banks, they do little to solve the underlying affordability problem, particularly in markets like Toronto and Vancouver where housing prices continue to rise.
The Bottom Line: Is a 30-Year Amortization Right for You?
If you’re a first-time home buyer or purchasing a new build, the new 30-year amortization could offer some relief in the form of reduced monthly payments. However, you’ll need to weigh that against the significantly higher interest costs over the life of your mortgage. Before making a decision, it’s essential to speak with a mortgage advisor to understand the long-term financial impact. They can help you explore other options, such as variable-rate mortgages or shorter amortization periods. At Cannect, our team of experts is here to guide you through the mortgage process and help you find the best solution for your financial situation.
Contact Cannect Today
Whether you’re considering a 30-year amortization or looking for alternative ways to make your homeownership dream a reality, Cannect can help. With our unbiased, no-commission advice and access to competitive mortgage rates, we’re here to ensure you make the most informed decision possible.
Reach out today to learn more about how we can help you navigate Canada’s changing housing market.
