Exciting news: 30-year amortizations are back for insured mortgages!

Hello future homeowners! If you’re a first-time homebuyer, or buyer of a new construction home, you might have heard the exciting news. 30-year amortizations for default-insured mortgages are back! This change can make a positive difference in your home-buying journey, especially when it comes to managing your monthly payments and overall affordability. Let’s dive into what this means for you and how you can access these longer amortizations with an insured mortgage.

What is a 30-year amortization?

An amortization period is the total length of time it takes to pay off your mortgage in full. For the last few years, the maximum amortization period for insured mortgages in Canada was 25 years. This sometimes proved restrictive, especially for first-time homebuyers. Now, with the reintroduction of 30-year amortizations for high ratio mortgages, you can spread your mortgage payments over a longer period. This can result in lower monthly payments, making home ownership more accessible and affordable.

30 year amortizations are unchanged for “conventional” mortgages

If you’ve read some of the other posts on my site, you’ve probably realized that by putting more than 20% down – which is known as a conventional mortgage – you already have access to 30 year amortizations. The most recent regulatory changes apply to mortgages where your down payment is less than 20%. For closing dates after December 15, 2024, they will be available to all first-time homebuyers, as well as any buyer of a new construction home.

Benefits of a 30-year amortization

Lower monthly payments

This is the big win with 30 year amortizations. By extending your amortization period to 30 years, your monthly mortgage payments will be lower compared to a 25-year amortization. This can free up cash flow and give you breathing room so you can afford other expenses or savings.

Increased affordability

Stretching the amortization to 30 years, and thereby lowering your monthly payments, can make our qualification calculations work better. In other words, it can make it easier for you to qualify for a mortgage, especially if you’re on a tight budget.

Flexibility

With lower payments, you have the flexibility to make additional payments or lump-sum payments on your own schedule, when you have extra funds, rather than being forced to make higher payments whether it’s a comfortable month cash-flow-wise or no. Making extra payments helps you pay off your mortgage faster. This way, you make the decision on when you choose to do so.

Pricing changes for default insurance premiums

If you choose a 30 year amortization for your insured mortgage, you will still have access to the best pricing offered by your mortgage lender. There will however be a bit of an increase in the cost of the insurance premium added to your mortgage. With a 25 year amortization, the premium ranges from 2.8% of the mortgage amount for a down payment of 15-19.99%, to 4% of the mortgage amount if your down payment is 5-9.99% of the purchase price. With a 30 year amortization, the premium will be 3.55% for a down payment of 15-19.99%, and 4.75% of the mortgage amount for a down payment of 5-9.99% of the purchase price.

For example:

With a $500,000 mortgage at 4.64%, and including the 4% default insurance premium, the monthly payment over a 25 year amortization is $2,918.67. The same $500,000 mortgage at 4.64%, and including the 4.75% default insurance premium, is $2,683.65 per month with a 30 year amortization. In other words, with the 30 year amortization, the monthly payment is $235.02 less. The extra .75% insurance premium costs $19.21 per month more. So the extra cash flow with the 30 year amortization is $215.81. While it’s not a huge amount, $215 a month is $215 a month. It gives you that little bit of an extra cushion.

Some of the fine print

1. At least one of the borrowers purchasing the home must be a first-time homebuyer.
2. Additionally, if the borrower recently experienced the breakdown of a marriage or common-law partnership, and has been living separate from their spouse for a period of 90 days prior, they can also access this program too.
3. The borrower isn’t necessarily a FTHB, but the home being purchased is a new build home
4. The property will be at least partially occupied by the purchaser.
5. For more details, check out the federal government materials about the program.

Final thoughts

As with many government programs, this one isn’t the right fit for everyone. That said, it does offer you more options, and provides one more tool which may help you achieve your dream of home ownership.

If you’d like to chat about how this might work for your situation, or to develop a mortgage game plan for your first home, please get in touch!

Image [c] Giulia Zaffiro for vecteezy dot com

Is Canada extending insured mortgage amortization period to 30 years for first-time homebuyers?