25-Year vs. 30-Year Mortgage? Insight From a Mortgage Broker

 The summer months have brought exciting changes to the mortgage landscape. Back in July, the Bank of Canada reduced its policy rate. Recently, the government announced a new policy allowing 30-year mortgages for first-time homebuyers. As a professional mortgage broker, let me help you break down what these changes mean for buyers.

What is Amortization?

Mortgage amortization is the period during which a mortgage is repaid. The standard amortization period is typically 25 years. However, because of the new policy, the lender’s terms and the buyer’s down payment can now extend the loan to 30 years.

Who is Eligible for a 30-Year Mortgage?

The new policy introduced by the Canadian government allows first-time homebuyers to access 30-year mortgages. This change aims to help first-time buyers by lowering monthly payments, making it easier for them to afford a home.

However, to qualify for the new 30-year amortization period in Canada, buyers must meet specific criteria as a First Time Home Buyer. Buyers must be purchasing a newly built home without previous residents, should not have lived in a home owned by themselves or their current spouse or common-law partner unless they have recently ended their marriage or partnership, and have not owned a home in the last 4 years.

Additionally, they should have a high-ratio mortgage, which means the loan exceeds 80% of the home’s purchase price. To qualify for an insured mortgage, the home must have a value under $1 million. In addition, the buyer must put less than 20% of the purchase price toward a down payment, and the home must be purchased with the intent to live in it.

Weighing the Options

Compared to a shorter amortization period, a 30-year mortgage offers lower monthly payments but results in higher total interest costs. For first-time buyers, this means more manageable monthly expenses but increased overall financial costs due to the extended interest payments. The Bank of Canada’s rate cut could lower mortgage rates, making it easier for first time home buyers.

Deciding between a 25-year and a 30-year mortgage involves considering various factors:

25-Year Mortgage: Offers higher monthly payments but reduces total interest costs and allows homeowners to be mortgage-free sooner.

30-Year Mortgage: Provides lower monthly payments, making it easier to manage monthly budgets, but increases the total interest paid over time.

With expertise in comparing different mortgage products and understanding the implications of various amortization periods, I can assist clients in choosing the best option based on your financial goals and circumstances.

Mortgage brokers can negotiate with lenders to secure favorable terms, ensuring that you are well-informed and confident in your mortgage decisions. Let me help you make the most informed choice, whether opting for a 25-year or a 30-year mortgage. Reach out today and let’s discuss your financial goals!