Canadians Can Get 30-Year Mortgages Beginning Aug. 1

A real estate sign outside a home in Vancouver on June 12, 2018. The Canadian Press/Jonathan Hayward

Canadians will be able to stretch mortgages out for 30 years starting next month, a move the federal government says will reduce monthly costs and get more first-time buyers into the market.

In April, Finance Minister Chrystia Freeland announced that Ottawa would permit 30-year amortization periods on insured mortgages for first-time homebuyers purchasing new homes. This policy is set to take effect on Aug. 1.

Freeland said the move is directed at giving younger Canadians hope of homeownership.

“One of the biggest hurdles to homeownership for younger Canadians is qualifying for a mortgage and affording the monthly payments,” she said in a July 29 news release. “That is why, starting Aug. 1, first-time buyers of new builds will be able to reduce their monthly payments with up to 30-year mortgages.”

Under the current rules, if a down payment is less than 20 percent of the home price, homebuyers are required to get insurance from the Canadian Mortgage and Housing Corporation (CMHC). The longest amortization that CMHC will insure is 25 years.

While monthly payments may be lower for 30-year mortgages, interest payments are higher, according to the Royal Bank of Canada (RBC).

“A longer amortization period requires lower monthly payments. However, you will pay more interest over the life of the mortgage and it may take longer to build the equity in your home,” the RBC website says.

RBC gave the example of a $150,000 mortgage principal. While the monthly payment for a 25-year mortgage would be $780.04 and decrease to $713.28 for a 30-year mortgage, the difference in interest costs for full amortization would be $20,000 more for the 30-year term.

To qualify for a 30-year mortgage, homebuyers must meet some specific criteria. At the top of the list is that homebuyers must be purchasing a newly constructed home, not one that is currently on the market.

Additionally, at least one borrower must be a first-time homebuyer. This means the individual has never purchased a home before or has not owned a home in the last four years, or has recently gone through a relationship breakdown such as divorce or common-law partnership.

Critics like University of Toronto assistant professor of economics Rob Gillezeau have raised concerns over the government’s plan, saying it could push home prices up and harm affordability.

In the fourth quarter of 2023, Canadian households with a median income would need to spend 63.5 percent of it to own a home at market price, RBC assistant chief economist Robert Hogue said in an April 2 report.

“Affordability worsened in all markets we track: Vancouver, Victoria, and Toronto experienced the biggest deterioration, further exacerbating acute stress,” he wrote. “The situation also became more challenging in Ottawa, Montreal, and Halifax, where affordability is at, or near all-time worst levels.”

Hogue noted that ownership costs would take some time to drop, estimating costs would fall to mid-2022 levels in 2025.

“That would scarcely lower the bar for most potential buyers. Meaningfully restoring affordability will likely take years in many of Canada’s large markets,” he said. “In this context, we expect the housing market’s recovery to be slow at first, before gaining momentum as interest rate cuts accumulate.”