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Are Mortgages With 35-Year Amortizations Worth It?

April 19, 2021
5 mins
A woman looks concerned as she checks her bills and statements

It’s been about a decade since mainstream lenders last offered 35-year amortizations in Canada. Since then, they’ve been sold mainly by alternative lenders (read: lenders that accept riskier borrowers and charge higher interest rates).

But 35-year “ams” are still out there for those with 20% or more equity. Spreading your mortgage payments over 35 years may be worthwhile, but only for specific borrower types. Let us explain…

When You Need Payment Flexibility

If you’re well-qualified and want the lowest possible payment, a HELOC is the answer because it permits interest-only payments at great rates (as low as 2.35% today). That results in a payment as low as $195 per $100,000 of mortgage.

Meanwhile, the lowest 35-year amortization rate we’re aware of is currently a 1-year fixed at 2.99%. That doubles the payment to $383 a month and costs thousands more in interest.

The key here is that $383 a month is still more than a regular fixed mortgage payment. A regular mortgage amortized over 30 years can be had as low as 1.99% or less. That results in roughly a $369 a month payment per $100,000 of mortgage.

But It’s Not Just About the Payment

Why would anyone want a 35-year mortgage that costs more — in terms of payments and total interest cost — than typical bank rates?

Because they can’t qualify for those bank rates.

Canada’s 35-year amortization lenders will let you:

  • Have higher debt-to-income ratios than a bank
  • Have a lower credit score than a bank
  • Use more self-employed income than a bank
  • Use more rental income than a bank (if you have rental properties)

Today's Featured RatesUpdated 18:56 ET on Jun 23, 2021

Rates are based on a home value of $400,000

card image
1.67%
Term
5 Yr Fixed
Loan to value
80.01% to 95%
Insurance
Insured
Rate held until
Aug 08
card image
0.99%
Term
5 Yr Variable
Loan to value
80.01% to 95%
Insurance
Insured
Rate held until
Oct 22

In short, lenders that allow 35-year amortizations will approve you more easily, and for a bigger mortgage. That means more buying power when you’re in a competitive housing market.

That doesn’t mean you should run right out and borrow the maximum you can get. Don’t. Not unless you’re certain you’ll have more income coming in soon, have minimal budgetary risk, have emergency access to funds and can make the payments with ease.

To get a 35-year amortization, you need to use a mortgage broker and sometimes additional lender fees apply. A 1% lender fee, for example, raises your effective interest rate the equivalent of 0.20 percentage points on a 5-year term. That’s not insignificant, but if you can’t get financing any better way, a 0.20% rate premium is often better than:

(A) letting a new home slip away, or

(B) being saddled with higher-cost debt and not being able to refinance.

The takeaway here is this: With longer amortizations, it’s all about monthly cash flow, relative borrowing costs and the opportunity cost of not getting financed. While 35-year amortizations aren’t made for everyone, they do keep your payments at a minimum if you can’t qualify with a bank.

Rob McLister

Rob McLister has been informing mortgage consumers and professionals since 2007. In that time, he’s written more than 2,500 mortgage stories for publications ranging from the Globe and Mail — where he presently serves as mortgage columnist — to the National Post, Maclean’s, Canadian Mortgage Trends and RateSpy.com. Regularly quoted throughout the media, Rob is a committed advocate of greater transparency in the mortgage industry. He’s also been a vocal consumer advocate for more sensible mortgage regulation. In 2011, he launched two mortgage fintechs: mortgage comparison website RateSpy.com and digital mortgage broker intelliMortgage Inc. The former is the go-to source of Canadian mortgage news and the only site comparing all publicly advertised prime mortgage rates. The latter is Canada's leading online mortgage provider for self-directed borrowers. Both companies were acquired in 2019 by RATESDOTCA Group Ltd.

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