Time for 30-Year Mortgages in Canada? One Homebuilders Group Says Yes

The Canadian real estate market needs to have 30-year amortization periods for mortgages to grapple with the nation’s housing affordability challenges and facilitate more construction activity, says an industry group representing the country’s residential home builders. Speaking at a February news conference, Canadian Home Builders’ Association CEO Kevin Lee encouraged the federal government to allow the creation of 30-year mortgages in Canada, for insured mortgages on new residential properties.

All three levels of government have weighed various public policy options to grapple with Canada’s housing affordability challenges. The association’s chief thinks extending the amortization period for mortgages by an additional five years would foster a real estate climate of more first-time homebuyers and developers building more homes.

“Canadians would love to buy homes. The problem is they can’t afford to buy homes and can’t access mortgages that would enable them to buy homes,” Lee said. “And if we don’t have people able to purchase, then builders aren’t able to go ahead and build those homes.”

This was part of an official recommendation in the organization’s report assessing tools to use to bolster housing affordability.

“Reintroducing 30-year insured mortgages for well-qualified first-time homebuyers (not all buyers) will address the growing inequities in mortgage access and deliver benefits to all Canadians, and particularly millennials and new Canadians who deserve a fair shot at home ownership,” the group’s report stated, adding that has been incorrectly stated repeatedly that first-time homebuyers are “high risk.”

In fact, younger Canadians are the lowest risk group of buyers in terms of mortgage arrears, plus they have the longest timeframe to pay off their mortgages, the report explained. “Their incomes also tend to rise consistently and quickly, making mortgage payments increasingly affordable over time. And first-time buyers seeking entry-level homes do not cause excessive house price escalation in any regional market.”

The residential builders entity forecast that a 30-year mortgage rate would lift prices by between one per cent and 2.4 per cent.

Other policy proposals from the Canadian Home Builders’ Association:

• Adjust the stress test to align with market conditions.
• Adopt federal policies and programs to bolster supply.
• Institute affordability as a chief objective of the National Building Code.
• Endorse and expand home energy labelling.
• Install a permanent renovation tax credit.

30-Year Mortgages Making a Comeback?

While mortgage lenders offer 30-year home loans, they aren’t easy to find in the current banking landscape. This is because the Canada Mortgage and Housing Corporation (CMHC) only provides mortgage default insurance for mortgages with a maximum amortization period of 25 years.

Believe it or not, there used to be amortization periods of up to 40 years for insured mortgages. Following the global financial crisis in 2008, the federal government imposed tighter mortgage regulations, reducing the maximum amortization period to 35 years. This was then changed in 2011 to 30 years. A year later, it was lowered to 25 years.

But could a 30-year mortgage become the new normal?

So far, none of the political parties are weighing on the proposal. However, housing economists and industry experts are discussing the pros and cons.

The biggest hurdle, according to real estate experts, is that a 30-year mortgage does not solve the fundamental issue affecting the nation: Supply. One of the leading causes of today’s post-pandemic prices is the scarcity of inventories across the country. The issue of housing stocks has improved in recent months, but it remains at the heart of the problem. Estimates suggest that the country is short 5.8 million homes to restore housing affordability by 2030.

“I don’t think it’s particularly harmful. But I also don’t think it’s particularly helpful either,” housing expert Mike Moffatt told The Canadian Press.

So, what would be some advantages of a 30-year mortgage anyway?

The first is that prospective homeowners would possess greater purchasing power, meaning they could acquire a larger home. The second is that the flexibility of a more extended amortization period would mean lower monthly mortgage payments. By having smaller monthly mortgage payments and a longer time to repay the home loan, you could, in theory, pay off the mortgage in less than three decades by boosting your schedule and trimming your total interest-carrying costs.

On the other hand, critics contend that there are pitfalls, too. For one thing, a longer mortgage length would lead to higher interest rates and potentially slower equity growth. According to market observers, it might also force public policymakers or lenders to request larger down payments than 20 per cent.

Canada’s Housing Reality

Federal officials have already conceded that Ottawa will be unable to accelerate home construction substantially. However, the current government has stated it could release a new housing plan in the coming months to address many of the Canadian real estate market’s shortfalls. Until then, the sector will pursue every idea to improve housing affordability and ensure more Canadians can access home ownership.