35-Year Mortgagesin Canada
It's common to think of mortgages as having a 25-year amortization, but more and more lenders are now offering 35-year mortgages in Canada. This extended amortization period may seem appealing for its lower monthly payments, but it's important to understand the implications and potential drawbacks of choosing a longer mortgage amortization.
On this page, we'll take a closer look at 35-year mortgages in Canada, including what they are, how they work, and the pros and cons of choosing this type of mortgage.
- Borrowers usually choose a 35-year mortgage in order to have lower monthly payments or to be able to qualify for a larger mortgage.
- A 35-year mortgage requires a minimum down payment of 20% and tends to have higher interest rates than a 25-year mortgage.
- Choosing a 35-year mortgage over a 25-year mortgage can reduce monthly payments, but will result in paying significantly more interest in the long run.
- Mortgage brokers can help you find a 35-year mortgage from alternative lenders such as credit unions, B-lenders, and private lenders.
What is a 35-Year Mortgage?
A 35-year mortgage is simply a type of mortgage where the amortization period (the time it takes to pay off the loan) is extended to 35 years instead of the traditional 25 years. This means that borrowers have a longer period of time to pay off their mortgage, resulting in lower monthly payments. Based on data from major financial institutions, approximately 38% of mortgages had a remaining amortization of over 25 years as of Q2, 2024.
Why Do People Get 35-Year Mortgages?
The main reason people choose a 35-year mortgage is for the lower monthly mortgage payments. By extending the mortgage’s amortization period, borrowers can spread out their payments over a longer period of time, resulting in smaller monthly amounts. This can be especially appealing for first-time homebuyers or those on a tight budget.
Another reason people choose a 35-year mortgage is to afford a more expensive home. With lower monthly payments, borrowers can take on a larger loan and purchase a home that may have been out of their budget with a traditional 25-year amortization.
That’s because the mortgage stress test, which is used to determine if a borrower can afford their mortgage payments, compares their debt payments to their income. With a lower mortgage payment, they’ll be able to qualify for a larger mortgage even with the same income. This can be especially important in areas with high housing costs, such as the Toronto housing market or Vancouver housing market.
Getting a 35-Year Mortgage
You’ll need to make a minimum down payment of at least 20% to get a 35-year mortgage. That’s because mortgages with a down payment of less than 20% require mortgage default insurance, which is only available for mortgages with an amortization period of 25 years or less.
Generally, uninsured mortgages have a higher mortgage interest rate than insured mortgages. This means that the interest rates on a 35-year mortgage would be typically higher than those of a 25-year mortgage.
Most big banks in Canada do not offer 35-year mortgages, making alternative lenders the primary source for this type of mortgage. Alternative lenders may include credit unions, B-lenders, or private lenders. Mortgage brokers can help you get a 35-year mortgage.
For investors of rental properties, a longer amortization can increase your cash flow. Since mortgage interest is tax-deductible for investors, this can partially outweigh the higher lifetime interest on a 35-year mortgage while improving cash flow.
Current 35-Year Mortgage Rates in Canada
Canada’s Lowest 35-Year Mortgage Rates
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Benefits and Drawbacks of 35-Year Mortgages
Some borrowers may benefit from a 35-year mortgage:
- Lower monthly payments make it easier to manage cash flow and budget for other expenses.
- Afford more expensive homes that may have been out of reach with a traditional 25-year mortgage.
While 35-year mortgages may seem appealing for their lower monthly payments, there are some potential risks that borrowers should be aware of:
- Higher interest rates mean more money paid in interest over the life of the mortgage.
- Longer time to pay off the loan, resulting in more interest and a higher overall cost of borrowing.
- You can’t make a 5% down payment like 25-year mortgages under $500,000, since 35-year mortgages require a higher minimum down payment of at least 20%.
Comparing 25-Year vs. 35-Year Mortgages
A 35-year mortgage can significantly reduce your mortgage payments, but it also increases the total cost of your mortgage. That’s because you’re paying interest and letting it grow for a longer period of time, resulting in higher overall interest payments.
To see how much more a 35-year mortgage would cost compared to a 25-year mortgage, let’s take a look at a borrower deciding between these amortization options for a $500,000 mortgage. To keep it simple, we’ll use the same mortgage rate for each example.
25-Year Mortgage
$500,000 balance at 5% interest
35-Year Mortgage
$500,000 balance at 5% interest
Monthly Payment
$2,908
Monthly Payment
$2,507
Total Interest
$372,407
Total Interest
$552,983
Going with a 35-year mortgage can reduce a $2,908 monthly mortgage payment to $2,507 per month. That’s an extra $401 per month that you get to keep in your pocket. However, take a look at the total interest! The total interest paid on the 35-year mortgage is $552,983, which is $180,576 more than the 25-year mortgage!
Is it worth it to pay 39% more interest in exchange for reducing your mortgage payments by 15%? Since a 35-year mortgage would most likely have a higher interest rate than a 25-year mortgage, this difference will be even larger.
35-Year Mortgage FAQs
A 35-year mortgage refers to a mortgage with a 35-year amortization period, meaning the borrower has 35 years to pay off the loan. This results in lower monthly payments but higher overall interest costs.
The main advantage of a 35-year mortgage is its lower monthly payments, which can make homeownership more affordable. It may also provide flexibility for borrowers with cash flow issues or those having trouble qualifying for a 25-year mortgage.
Some potential risks include higher overall cost of borrowing due to increased interest rates and more time for interest to accumulate. A 35-year mortgage may also mean carrying debt into retirement.
A 35-year mortgage can significantly reduce monthly payments but increase total interest costs compared to a 25-year mortgage.
The right choice depends on finding the balance between affordability and cost of borrowing that works for your financial situation. The answer depends on your individual circumstances.
For mortgage lenders that do offer 35-year mortgages, you can refinance your existing 25-year mortgage into a 35-year mortgage.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.