In just over a month, August 1 to be exact, first-time home buyers who buy a newly-built home will be able to choose a 30-year mortgage amortization, insured by Canada Mortgage and Housing Corporation. Online real estate portal Zoocasa points out a 30-year amortization can still be secured by all buyers by making at least a 20% down payment or opting for an uninsured mortgage. “Just over half (55%) of all home buyers are first-timers, but affordability for new builds remains steep and beyond most high-ratio mortgages,” says Penelope Graham, director of mortgage content at Ratehub.ca. “So, this remains a niche group, with those most likely to use the program either buying condos in the big markets, or outside major city centres.” “It will also boost interest in the new construction segment among this borrower group, and further incentivize new supply measures.” There are upsides and downsides to 30-year amortizations, including lower monthly payments and more interest paid over the term. Zoocasa has done the math, showing how much more you’ll pay with a 30-year plan, which can be “astronomical” it says. Zoocasa’s math included calculating how much the average monthly mortgage payment would be in cities across Canada and compared the interest paid on a 25-year mortgage and a 30-year mortgage in each. Mortgages were calculated assuming a 4.79% fixed rate with a 20% down payment and using the benchmark prices available from the Canadian Real Estate Association for March 2024. “Regardless of the mortgage term, the more expensive the home you buy, the larger the mortgage will be,” says Zoocasa.”That’s why Vancouver and Toronto require the largest monthly mortgage payments in Canada.” Vancouver’s benchmark price in March 2024 was $1,196,800, the highest in the country, bringing the mortgage to $957,440. “With a 25-year mortgage, Vancouver homeowners pay $6,818 per month in mortgage payments and $848,681 in interest over the life of the mortgage,” says Zoocasa. “With a 30-year mortgage, homeowners pay $6,238 per month in mortgage payments and $1,048,861 in interest. That comes out to a whopping $200,000 difference between the interest paid on a 25-year mortgage and a 30-year mortgage.” The second most expensive market is the Greater Toronto Area (GTA), with a benchmark price of $1,113,600. In the GTA, “homeowners will pay $6,344 per month in mortgage payments and will pay $789,682 in interest for a 25-year mortgage,” says Zoocasa. “With a 30-year mortgage, Toronto homeowners will have a lower monthly mortgage payment at $5,804 per month, but the trade-off is that they will also pay $186,263 more in interest over the entire mortgage period compared to a 25-year mortgage, for a total of $975,945.” In Alberta, Calgary’s March benchmark price was $580,400, with a mortgage of $569,254. Monthly payments on a 25-year amortization would be $3,243 with a total interest cost of $403,672. With a 30-year amortization, monthly payments would be $2,967, with total interest paid of $498,887. Edmonton’s March benchmark was $385,900, with a mortgage of $381,269 and monthly payments of $2,199 with a 25-year monthly amortization and $273,651 in interest paid. With a 30-year plan, monthly payments would be $2,011, with total interest paid $338,198. “Even in the most affordable markets in Canada, the difference in interest paid on a 25-year mortgage and a 30-year mortgage is quite substantial,” says Zoocasa. “In Regina, for example, which has a benchmark price of $313,100, with a 25-year mortgage, a homeowner would pay $1,784 per month, and with a 30-year mortgage, they would pay $152 less per month with a monthly payment of $1,632. However, opting for a 25-year mortgage would reduce the total interest paid by $52,370 compared to a 30-year mortgage.” In cities such as St. John’s, Moncton and Quebec, all with benchmark prices less than $400,000, homeowners with a 30-year mortgage will pay a minimum of $55,000 more in interest than owners with a 25-year mortgage. “The difference in monthly mortgage payments between a 25-year mortgage and a 30-year mortgage in all of these cities is also less than $200 per month,” says Zoocasa. “This further illustrates the importance of carefully considering your mortgage term length, regardless of the city you buy a home in.”
