Clay Jarvis
Beth Buczynski
While 25-year mortgages are the most common among Canadian homeowners, 30-year mortgages have their appeal, too.
With a 30-year mortgage, you’ll get lower monthly payments and more financial flexibility than with a mortgage that amortizes over 25 years. But you’ll almost certainly pay more for your home overall.
The following primer on 30-year mortgages in Canada will help you decide if an extended mortgage amortization is right for you.
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Who can get a 30-year mortgage in Canada?
You can currently only apply for a 30-year mortgage if you’re making a down payment of at least 20%, or if you’re a first-time home buyer who is purchasing new construction.
Note: On December 15, 2024, 30-year amortizations will be available for all first-time home buyers and anyone purchasing new construction.
The 20% down payment threshold for most properties can make the upfront cost of 30-year mortgages prohibitively high. Getting a 30-year mortgage for an $600,000 home, for example, would require a down payment of at least $120,000. With an insured 25-year mortgage, the minimum down payment can be as low as 5%.
Pros and cons of a 30-year mortgage
Even if you’re eligible for a 30-year mortgage, it’s crucial to understand both the benefits and drawbacks of these loans.
Pros
- Smaller mortgage payments. By stretching your mortgage out an extra five years, your monthly payment will decrease. Smaller mortgage payments can also keep your total debt service ratio in check, which may encourage lenders to finance larger home purchases.
- Flexibility. A 30-year mortgage may allow you more freedom to make prepayments that shorten the life of your loan, similar to how an open mortgage gives you more prepayment leeway than a closed mortgage.
- Portability. You may be able to port a 30-year mortgage to a new property worth more than $1 million, which can allow you to purchase a new home in the middle of your mortgage term without having to break your mortgage contract.
Cons
- Paying more in interest. A 30-year mortgage involves more time for you to be charged interest. The interest rate you’re charged will likely be higher than for a mortgage with an amortization of 25 years or less, too.
- More debt for longer. Three decades is a long time to pay back a loan, especially if it takes you close to retirement. If you’re still plugging away at a 30-year mortgage when you’re 64, for example, it might mean putting less into your RRSP or TFSA than you’re comfortable with.
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30-year mortgages vs 25-year mortgages: A cost comparison
The following example is based on Canada’s average sale price in August 2024, $649,100. To make for a simple, apples-to-apples comparison, we’ll use the same down payment amounts and interest rates.
| 30-year mortgage | 25-year mortgage | |
|---|---|---|
| 20% down payment | $129,820 | $129,820 |
| Interest rate | 4.5% | 4.5% |
| Monthly mortgage payment (5-year term) | $2,618 | $2,874 |
| Total interest paid | $423,305 | $342,942 |
| Total mortgage cost | $942,585 | $862,222 |
In this scenario, you’d pay $80,363 less in interest by getting a 25-year mortgage — but the lower mortgage payments associated with the 30-year mortgage might help you qualify for more financing and leave more breathing room in your budget.
Here’s an example that accounts for the discrepancy in rates you might encounter when comparing 30- and 25-year mortgages. We’ll use the same home price but use minimum down payment requirements since not everyone can afford to put 20% down.
| 30-year mortgage | 25-year mortgage | |
|---|---|---|
| Minimum down payment | $129,820 | $39,910 |
| Interest rate | 4.6% | 4.5% |
| Monthly mortgage payment (5-year term) | $2,649 | $3,507 |
| Total interest paid | $434,211 | $418,414 |
| Total mortgage cost | $953,491 | $1,051,971 (includes mortgage default insurance costs) |
In this example, you’d pay $15,797 more in interest costs if you opted for the 30-year mortgage, but the overall cost would be $98,481 less, and your monthly payments would be $846 lower. The savings in this scenario don’t come from the the longer amortization, though; they’re the result of making a larger down payment.
In the 25-year example, not only would you borrow an extra $92,577, but you’d also be on the hook for mortgage default insurance, which is required if you put less than 20% down.
Deciding whether a 30-year mortgage is right for you means digging into these kinds of details with a trusted mortgage professional. If you have the funds available to put 20% down on a home, a 30-year mortgage should be just one of the options at your disposal.
Frequently asked questions about 30 year mortgages
Yes. If you have a minimum down payment of 20%, you should be eligible for a 30-year mortgage in Canada. Alternatively, if you’re a first-time home buyer purchasing new construction, you’re also eligible for a 30-year loan. On December 15, 2024, all first-time buyers and all buyers of new-build homes will have access to 30-year amortizations on insured mortgages.
A 30-year mortgage isn’t necessarily good or bad. You could pay more in interest than if you signed a 25-year mortgage, but the lower monthly mortgage payments could make life more affordable and less stressful overall.
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