Canadians seeing multi-decade mortgage extensions

If you thought 25 years was a long time to spend paying off your mortgage, just wait until you see the multi-decade extensions some Canadians are getting (and not by choice, either). 

Driving the news: With interest rates spiking over the past year, many Canadian homeowners are watching their amortization periods – the length of time it takes to fully pay off a mortgage – increase anywhere from 60 to 90 years. 

  • Don’t go looking for 90-year mortgages, though, because you won’t find them. Amortizations are extending on variable-rate fixed-payment mortgages that Canadians already hold. 

Why it’s happening: Borrowers with variable-rate fixed-payment mortgages are having their amortizations automatically extended because they are reaching their trigger rates

  • On a variable-rate fixed-payment mortgage, the amount you pay towards principal and interest changes depending on the prime rate and can keep rising until your interest payments are greater than your principal payments.
  • When this occurs, you’ve reached your trigger rate, and lenders will take steps to keep you making payments—one way to do that is by extending the length of your mortgage.

Why it matters: Extending the amortization on your variable-rate fixed-payment mortgage might help you avoid defaulting on your payments, but it could also keep you in debt longer and may result in you paying even more in interest over the long term. 

  • If rising interest rates become too much for borrowers to bear, missed payments could become more frequent, triggering forced home sales.
  • Almost 1-in-2 borrowers chose variable mortgages in 2022 and now account for as much as one-third of the outstanding C$1.5 trillion in residential mortgages held by Canadian banks.

Bottom line: If you're nearing your trigger rate (or already hit it), it pays to be proactive and work with your lender to figure out the best option for you. Most lenders will try to figure something out—after all, they want to get repaid.