But what is an amortization period? Why is it important when you’re trying to qualify for a mortgage? Let’s take a look at the pros and cons of a 30-year amortization period and whether it might be a good option for you. 

What is an amortization period?

When you take out a mortgage, you sign up for two time periods: the amortization period and the term of the mortgage. 

The amortization period is the length of time it will take to finish paying off your mortgage. A 25-year amortization period is quite common among first-time homebuyers, though shorter periods are available, as is the 30-year amortization, in certain situations. 

The longer the amortization period, the smaller the mortgage payments, because you have longer to pay off the principal (the original mortgage amount). 

A mortgage term is the length of time that you sign up for a mortgage with your chosen lender (such as a credit union). Mortgage terms are often for five years, but they can be shorter and sometimes even longer. 

The mortgage term outlines the agreed interest rate, amortization period and any prepayment privileges (the amounts of mortgage principal you can pay off in addition to your regular mortgage payments). At the end of the mortgage term, you sign up for a new term; this can be with your original mortgage provider, or you can choose to switch lenders (people often do this to get a better mortgage rate). 

The 30-year amortization rule changes

A 30-year amortization period is not available to every homebuyer in Canada. While it has been an option for homebuyers with a down payment of 20% or more, it wasn’t available to homebuyers with smaller down payments. 

This was because homebuyers with small down payments have to take out mortgage insurance with the Canada Mortgage and Housing Corporation, which only offered amortizations of up to 25 years. 

This changed in late 2024 when the federal government introduced rules allowing 30-year amortizations for insured mortgages, in some circumstances.1 Now, 30-year amortizations are available with insured mortgages for all first-time homebuyers, as well as anyone buying a newly built home. 

This is a significant change, and one that could allow a lot more people to buy their first home. So, what are the advantages of a mortgage with a 30-year amortization?

The pros of a 30-year amortization mortgage

Smaller mortgage payments

This is a key benefit of a long amortization period. Having smaller mortgage payments can free up more income and make home buying much more affordable. 

Here’s an example of the mortgage payments for a home with a $500,000 mortgage and a 5% interest rate, with different amortization periods:

Amortization period                  Monthly mortgage payment

20 years                                         $3,286

25 years                                         $2,908

30 years                                         $2,668

As you can see, with the 30-year amortization, you would have an extra $240 every month compared to the 25-year option and over $600 extra compared to the 20-year option.

A better chance of qualifying for a mortgage 

Mortgage qualification is based on a number of factors, including your ability to make your mortgage payments. Lenders use debt service ratios to decide whether you qualify; these are calculations of how much you earn divided by your outgoings (including mortgage payments). 

If your mortgage costs are lower, your debt service ratios are lower and your chances of qualifying higher.

You could buy a bigger home

By taking out a 30-year amortization, you could qualify to buy a more expensive home than with a 25-year amortization. While a more expensive home would mean higher mortgage payments, opting for a longer amortization could reduce those payments enough to enable you to buy it.

Improved cash flow 

With lower mortgage payments, you’ll free up more cash to help you pay for everyday expenses and cover the costs that come with owning a home, such as property tax and repairs.

The disadvantages of a 30-year amortization mortgage

It can take longer to own your home

A longer amortization period naturally means that it will take longer for you to own your home outright, which can be off-putting for some people. However, if your income improves considerably, you can reduce your amortization period when you renew your mortgage term.

You pay more for your home

The longer your amortization period, the longer you’ll be paying interest. This could add up to thousands of dollars more, depending on the size of your mortgage and the interest rate involved.

Your home’s equity grows slower

Having considerable home equity can be a useful financial option when looking to borrow money. When you have a 30-year amortization, you pay off less of the principal amount, so your equity grows slower.

You could still be paying a mortgage when you retire

While this could be true for anyone, when you choose a 30-year amortization, the chances of having to make mortgage payments in retirement are more likely, which would put a significant dent in your retirement income.

Sources:

1 Government of Canada: Government announces boldest mortgage reforms in decades.