30-year mortgage amortization period

What are the benefits of a 30-year mortgage?

A 30-year mortgage offers a few useful benefits for homeowners, including:

• Free-up your cashflow. Lower monthly payments mean more money to stash away in savings or other investments.
• Access to a bigger mortgage. Since your monthly payments will be lower, you could potentially be eligible for a larger mortgage amount.
• Avoid paying mortgage insurance. Since you’re required to pay a down payment of at least 20% on a 30-year mortgage, you’ll avoid the extra cost of paying CMHC (or mortgage insurance).

What should I watch out for?

Despite their ability to free-up your cash flow, 30-year mortgages come with a few pitfalls:

• Your down payment. You can’t get a mortgage longer than 25-years unless you put down at least 20% on your home.
• More interest. Smaller monthly payments over a longer time means paying more interest in the long run.
• Build equity slower. Compared to a shorter term mortgage, it takes longer to build equity and truly own your home with a 30-year mortgage.

Is a 30-year mortgage right for me?

The lower monthly payments of a 30-year mortgage offer flexibility with your income and cashflow — an asset if big life changes are on the horizon. Down the road, you’ll have the option to refinance to shorter terms if you can afford larger monthly payments.

That said, if you can avoid the high interest on a 30-year mortgage, it could save you thousands of dollars in the long run. If you can comfortably pay your mortgage and living expenses – and want to quickly build equity in your home – you may want to consider a shorter amortization period of 10-, 15- 20-, or 25-years.

Which banks offer a 30-year mortgage?

Most banks, credit unions and online lenders offer 30-year amortization periods. Keep in mind you’ll need to pay at least a 20% down payment on your home in order to be eligible for an amortization period of more than 25-years.

Bottom line

When it comes to flexibility and stability, a 30-year mortgage could be the answer. Low monthly payments can help you plan your financial future – but it comes at the high price of paying thousands of dollars more in interest.

If you don’t plan on living in the house for 30 years or you don’t like the idea of paying more interest over the life of the mortgage, compare shorter amortization periods to find one that better suits your needs.

Frequently asked questions

• Why can't I get an amortization period longer than 25-years if I have an insured mortgage?

  If you have an insured mortgage – meaning you’ve put less than 20% as a down payment – the longest amortization period you’re eligible for is 25 years. This is because longer mortgages tend to have higher rates of defaulting due to higher interest payments over the life of the mortgage. Since you’ll pay thousands of dollars for mortgage insurance, the additional interest charges can be too costly.

• Can I get higher than a 30-year mortgage?

  Yes, although 25-year amortization periods are the most common in Canada, you can get a 30- or 35- year mortgage. However, you’ll need to pay at least a 20% down payment, as insured mortgages cannot exceed 25-year amortization periods.

• What's the difference between a mortgage term and the amortization period?

  The amortization period is the total length of your mortgage, while a term is the length of time you lock in your rate and terms for. Once your term ends, which is typically anywhere from 6 months to 10 years, you’ll need to refinance your mortgage.

• Can I pay off a 30-year mortgage in 15-years?

  Unless your mortgage terms include a prepayment penalty, there’s nothing stopping you from paying off your 30-year mortgage ahead of time. With an open mortgage, you can typically pay up to 15% to 20% of your original mortgage balance each year without incurring penalties. Once your term expires and you need to renew your mortgage, you can also speak to your current lender about switching your amortization period or remortgage with a new lender completely.

• How can I payoff my mortgage faster?

  Refinancing your mortgage to a shorter amortization period is a great way to payoff your mortgage faster. Making additional lump sum payments each year towards your mortgage can also help you payoff your mortgage much faster – just watch out for prepayment penalties.

• Why would I choose a variable rate mortgage?

  Variable rate mortgages often feature lower interest rates and monthly payments early in the term compared to fixed-rate mortgages. These mortgages can also allow you to take advantage of falling interest rates without the need for refinancing — but keep in mind that rates can rise as well, depending on the market.