Rising interest rates making 30-year amortization more popular for homebuyers

As interest rates continue to rise, the cost of buying a house in Ottawa and across Canada is becoming more expensive. Many homeowners are now forced to extend their mortgage payments.

Sabrina and Joey Pasqua recently had their third child. As the cost of living continues to rise, they’ve decided to spread out their debt and extend their mortgage commitment to 30 years. 

"Thirty years is a long time to be paying down your mortgage," Sabrina said.

Joey adds, "Due to the fact that we have less capital to put down on our current property and interest rates almost doubled, we have to go with a 30-year mortgage to ease our monthly payments."

The Bank of Canada raised interest rates again this week, another quarter point to 4.75 per cent.

Sabrina says their current home sold for much less than it could have a year ago.

"This home did not sell for what we thought it would sell. And so we have less of a down payment to put on that home."

Thousands of homeowners are making the choice to increase the amortization period for their mortgages. Last year, 30 per cent of mortgages from major lenders like BMO, CIBC, and RBC, had an amortization of at least 30 years. 

Just two years ago in October of 2021, the number of 30-year mortgages was zero. 

Mortgage agent Frank Napolitano acknowledges the advantages and drawbacks of longer amortization periods.

"If you amortize it over 30 years, you're at least getting a little bit of relief for now while the interest rates are high. The downside of a higher amortization is that it obviously takes longer to pay off your mortgage, and there's less money going towards the principle," Napolitano, with Mortgage Brokers Ottawa, says. "The only thing that 30-year amortization or a 25-year amortization does is a guideline for what your payments are. That's all it is. You get to control how quickly you pay off your mortgage based on how aggressive you want to be with your payments.”

If you go with 30 years, you can change it back, paying it off more quickly, even if it feels very unlikely right now.

"Everybody in this country is already putting money towards the RESP in order to help our kids go to school," Joey Pasqua says. "It's like, what's next? Do we have to start saving to help our kids buy a home?"