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More and more Canadians these days have 30+ year amortization mortgages. This is something previously unheard of. However, prime rate going up an unprecedented four percent in 2022 resulted in the amortizations for many Canadians being pushed beyond 30 years.

Is it good for Canadians to keep that much debt for that long? Let’s answer that important question and others.

Why Is It Happening?

The main reason for the move towards 30+ year amortization mortgages is higher interest rates. In 2022, the prime rate went up an unprecedented four percent. Homeowners were caught off guard by how quickly it happened and it put many Canadians in a financial bind.

Stressing The Mortgage Stress Test

With the mortgage stress test borrowers only had to prove that they could handle mortgage rates two percent higher. But prime rate went up double that in a short time span. This resulted in the mortgage loan payments doubling or more for those variable rate mortgages with floating payments.

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Keep A House While Keeping A Budget

For those with a variable rate mortgage and a fixed payment, borrowers had a choice. They could choose to increase their payment to keep up with their original payment schedule or they could choose to keep their payment the same.

Many chose to keep their payment the same for budgeting purposes. The last thing Canadians wanted to do was miss a mortgage payment and hurt their credit score.

By not voluntarily increasing their mortgage loan payments, this resulted in their amortization extending to beyond the 25 or 30 years they originally signed up for.

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Is It Good For Canadians To Keep That Much Debt For So Long?

It depends. It’s the hope of many Canadians with an amortization period over 30 years that interest rates will come down. By the time they go to renew their mortgage, rates will be lower.

This means that things will even out and they will still be on track to pay off their mortgage based on the original 30 year amortization that they signed up for. However, this remains to be seen.

But if rates don’t come down as quickly as these borrowers had hoped, borrowers will face a tough decision. Are they willing to cut back on other life expenses to increase their mortgage loan? Do they want to refinance and keep their amortization period stretched out?

Who Should Consider A 30+ Year Mortgage?

Variable rate mortgages with a fixed payment helped save a lot of Canadians when the prime rate went up four percent in one year. However, this would have likely been a different story if all borrowers were forced to pay higher mortgage payments as a result of the prime rate going up.

Paying your mortgage over a longer period of time does have its downsides though. It will take you longer to pay off your mortgage and cost you more interest. It could end up costing you tens of thousands of dollars more.

Someone should only consider extending their amortization period if they have no other choice. Increasing their mortgage payment would strain their personal finances so much that they wouldn’t be able to handle it. For someone like that, a longer amortization can make sense.

Does A 30+ Years Mortgage Make Sense If You Refinance When Rates Fall?

It depends. You should sit down with a financial planner and make sure you’re still going to be able to meet all your financial goals with a longer mortgage amortization. If you are, that’s when you might consider taking out a longer amortization of 30+ years and refinancing when rates come down.

Is It Time To Go Back To Variable Or Stay With Fixed Payments?

If you currently have a variable rate, it’s probably worth riding out the term. When the prime rate comes down, that’s when you’ll benefit from having a variable rate.

However, if you’re someone taking out a new mortgage, variable rate mortgages don’t make a lot of sense these days. Variable rate is about one percent higher than fixed rate mortgages. As such, you’re often better off taking a shorter term fixed rate of three or four years and renewing when rates are hopefully lower in three or four years’ time.

Sean Cooper avatar on Loans Canada
Sean Cooper

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach, and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense.

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