New Democratic Party leader Jagmeet Singh wants to reintroduce 30-year amortizations to insured mortgages and Mortgage Professionals Canada encourages this proposal.
The NDP announcement, which was made on Wednesday, is part of Singh’s efforts to make home ownership more affordable for young Canadians by allowing them more time to budget.
“We have some technical concerns about the structure of Mr. Singh’s pledge today, but we are very encouraged to see 30-year amortizations as a component of the NDP support plan for would-be first-time buyers,” said Paul Taylor, the president and CEO of Mortgage Professionals Canada, in a statement.
Increasing the current 25-year maximum by five years will leave first-time homebuyers in a better financial state, the association argued in a press release. A longer amortization period reduces the amount of your principal and interest payments by spreading the payments over a longer period of time. This means Canadians will be able to make smaller regular payments on their mortgage. As a result, they’ll have more opportunity (and time) to save and invest in the long run.
Thirty-year amortizations will also allow first-time homebuyers to compete with investors for a property, Mortgage Professionals Canada noted.
While these benefits are certainly appealing, the drawback of a longer amortization period is that it will take Canadians longer to pay off their mortgages, thus costing them roughly 20 per cent more interest over time, the Globe and Mail reports.
Canadians consider this a pretty big downside, as a 2017 survey found that six in 10 people considered longer amortization periods “bad debt practice.”
But regardless of public attitudes, the fact is that 30-year amortizations will make home ownership more attainable for Canadians. Not only are the payments more affordable, but smaller payments means more people will be able to pass the mortgage stress test, which was introduced last year.
The stress test, according to Mortgage Professionals Canada, is one of the biggest hurdles for aspiring first-time homebuyers, as it has “exacerbated the current rising interest rate.”