Longer amortization periods are becoming the norm

Bigger mortgage payments have Canadians finding new and creative ways to continue making their monthly payments—even if it means they’re ultimately going to pay more.

Driving the news: Almost a third of homeowners are extending their loans to 30-year amortization schedules to help them stay afloat amid high-interest rates and biting inflation, per the Toronto Star.

  • Until recently, BMO, CIBC and RBC had no 30-year mortgages. 25 years was the typical term—as of Q4, the share of their mortgage portfolios with extended amortizations is hovering around 30%.

Why it's happening: Many variable rate mortgage holders saw payments balloon and hit their "trigger rate"—the interest rate at which a lender can increase your monthly payment if the current amount isn't covering the interest on the loan—as interest rates have grown.

  • Extending the amortization period can help borrowers avoid defaulting on their loans and fend off foreclosure. 

Yes, but: The loan will be paid off more slowly, meaning you'll accrue more interest—which can be a challenging hole to get out of if it's tied to a large amount like a mortgage. 

  • "When the mortgage passes the trigger rate, and the amortization is extended, the consumer is paying mostly interest and barely paying down the principal," real estate expert Victor Tran said. 

Why it matters: The low mortgage delinquency rate proves Canadians prioritize paying their mortgage over other debt repayments. However, they need some wiggle room to get through the cash crunch. 

  • Only 0.18% of outstanding mortgages were 60 days past due, but loans for cars, credit cards and lines of credit all saw double-digit growth for delinquencies in Q4.

If you're up for a mortgage renewal soon, here are some tips to help you get the best rate:

  • Start early. Don't wait until your lender sends you your 30-day renewal notice. You can start negotiating as far as 120 days from your renewal date.
  • Shop around. Find out what competitors can offer you and take those to your lender. They need to know you're willing to switch for a better rate.

  • Hold that rate. You'll need to work with a mortgage broker to do this, but you can ask for a rate hold (if you find a good deal) which will protect you from an interest rate increase for 120 days.