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Extended Amortization Mortgages

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As of July 9th, 2012, the CMHC no longer insures mortgages with amortizations longer than 25 years, and the products referenced on this page are no longer available. Amortizations of up to 40 years are still available for conventional, uninsured mortgages, but these mortgages require a down payment of 20% or more.

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The definition of Amortization is roughly: Paying off a debt over a period of time through payments made at regular intervals. Each payment is a blend of principal and interest. The interest portion of the payment pays the lender for the use of the money; the principal portion is directly applied to the loan balance, reducing the amount of owed at each interval or payment.

DID YOU KNOW:
The vast majority of home buyers purchase their homes with a 25 year or longer amortization. These longer amortizations make the payments for mortgages substancially smaller, and all the more affordable.

To combat the oncoming recession, in the mid 2000’s, longer amortizations were introduced by Canada’s governing agencies. These longer amortizations are helping boost mortgage activity in Canada and helping increase the number of new and pre-owned home sales across the country. People that were otherwise unable to enter the homeowner market in times past are now able to afford the payments for a house through longer amortization periods.

Longer amortizations (25+ years) are readily available and are used to make the blended payments of principal and interest much more affordable. Shorter amortizations result in the loan being paid off quicker, but at the cost of higher payments; longer amortizations result in smaller payments, but the loan is being paid off over a larger period of time. If you can handle a higher payment, you can choose to have a lower amortization (5, 10, 15 years) and will pay less interest over the life of your mortgage.

Extended amortization periods are becoming more common in Canada. With the price of housing climbing every year, it is increasingly difficult for many Canadians to qualify for and afford the payments on a mortgage. Extended 30 year amortizations are requested by Canadians on a daily basis now.

DID YOU KNOW: Having a 30 year amortization doesn't mean you're stuck with a mortgage for 30 years. Many Canadians sell their homes earlier and pay the remainder of the mortgage from the proceeds of the sale. People generally sell or move at the end of a mortgage term, which is most commonly 5 years.

The average Canadian household earns around 100,000 dollars per year. At today’s best rates, this means they can typically afford to make payments on a 25 year mortgage of, approximately, 500,000 dollars maximum. If they live in a rural area, it’s fairly easy to find suitable properties in this price range. If they live in the city though, 500,000 dollars may not be enough to find a home that suits their needs. The option of increasing their mortgage to a 30 year amortization increases the maximum amount they can afford to about 600,000 dollars, which can make all the difference when hunting for a home.

Regardless of whether you choose an extended amortization or not, most would agree that there is a place for it in the market. Extended amortizations will be a part of our economic landscape for many years to come. Alberta Equity mortgage brokers can assist you by giving you advice and offering you options when it comes to extended amortizations.

Extended Amortization Mortgages at a Glance

PROS

  • Lower monthly payments
  • Easier to qualify for the mortgage you require
  • Allows you to qualify for a higher priced home purchase
  • Rate is not affected negatively with an extended amortization, same low rates

CONS

  • Takes longer to pay off your mortgage in full
  • Payments are compounding for a longer period of time so more overall interest will be paid by the borrower
  • It will take longer for the principal amount to be paid down
  • Though we’re nearly there, extended amortizations aren’t available on all lender products

Alberta Equity has helped over 50,000 people find and qualify for the best mortgages in Canada for over ten years. We do all of the heavy lifting and ensure that you get the best mortgage rates and product features available. Apply online for a free, no obligation consultation or alternatively, view our products and services.