MNI INTERVIEW: Canadians Dodge Mortgage Woes With Longer Loans

Canadians living in one of the world's frothiest housing markets are extending the length of their mortgages to avoid failing to pay monthly bills as higher interest rates and inflation boost their expenses, a senior economist at the federal housing agency told MNI.

Those moves have kept arrears rates near historical lows even though it also means households are losing the chance to build up wealth from their property, according to Tania Bourassa-Ochoa from Canada Mortgage and Housing Corp.

"People are putting most of their budget to pay down the house and those expenses so that has definitely contributed to that financial pressure that has been mounting over the years," she said in an interview. 

Canada's standard mortgage was a twenty or 25-year loan where the fixed interest rate is reset every five years. Millions of borrowers are going through a shock with mortgage rates reflecting the Bank of Canada's hikes to its trend-setting overnight rate from near zero during the pandemic to as high as 5%. Inflation peaked at 8% before slowing back down to the Bank's 2% target and many polls show households still hurting from high prices, especially for groceries. (See MNI INTERVIEW: Food Prices Still Problem Across G7-Champagne)

“In some cases, it may make sense, a longer amortization period just to make ends meet right at the end of the month,” Bourassa-Ochoa said. 

TRADE-OFF

Recent rule changes allowed for more 30-year mortgages and during the pandemic the government encouraged lenders to provide that and other kinds of relief to avoid loans going bad. At the same time, earlier changes made after the 2008 U.S. housing crash such as an interest rate "stress test" have also helped keep borrowers out of trouble, Bourassa-Ochoa said. 

Still, loan extensions come at a cost, she added. Extending amortization to 30 years on a CAD400,000 mortgage at a 3.5% interest rate means a household will lose almost CAD50,000 in home equity, she estimates.

"So it's really that trade-off between short term cash flows and short-term relief of financial pressures versus long term wealth accumulation.”

WANING WORRIES

Worries by investors and economists about a housing crash in Canada have given way to the view that the surge in housing prices beyond a million dollars in Vancouver and Toronto has become permanent. The risk remains that consumer debts that have risen to become larger than Canada's GDP will at some point trigger defaults or strain on banks. 

Longer amortizations appear to be a permanent trend that will outlast the recent swings in interest rates and inflation, Bourassa-Ochoa said. "The higher cost of living, that is definitely a big piece of the story" she said. So are the rule changes that allow 30-year mortgages and raised the cap on Canada's mortgage insurance, she said.

Borrowers with less than a 20% down payment must pay for mortgage insurance in Canada. Another side effect of the boom has been borrowers taking out a longer loan or making a smaller down payment and taking out insurance to get the kind of house they really want now, she said.

"There's basically a shift between first time home buyers in the uninsured space versus the insurance piece. So what that's telling us is that basically people are also buying more home," Bourassa-Ochoa said.

More than 1.5 million households have already renewed their mortgages at a higher interest rate, CMHC estimates, and another million households are expected to renew this year. The share of new uninsured mortgages at chartered banks with amortizations longer than 25 years remained above 60% for the fourth consecutive year according to the latest data from Q2 2025.

About CAD1.5 trillion of mortgage debt is on loans with terms longer than 20 years.