When you’re in the market for a new home in Canada, one of the biggest financial decisions you will face is choosing the right mortgage term. While the 25-year amortization period is common, the 30-year term is gaining traction, especially for those looking for lower monthly payments. Here’s a deep dive into the differences in interest payments between 25-year and 30-year mortgages across various Canadian cities, helping both buyers and sellers in the Greater Toronto Area (GTA) make informed decisions.

Why Consider a 30-Year Mortgage?

Starting from August 1, 2024, insured first-time homebuyers can opt for a 30-year amortization period when purchasing newly built homes. For others, securing a 30-year term is possible with a 20% down payment or through an uninsured mortgage. This longer term can significantly reduce your monthly payments, making homeownership more accessible in the short term.

The Cost of Extended Terms: Interest Comparisons

To illustrate the financial impact of extending your mortgage term, let’s look at the differences in total interest paid over the life of the mortgage in some key Canadian cities.

High-Cost Areas: Vancouver and Toronto

• Vancouver: With a benchmark price of $1,196,800, opting for a 30-year mortgage results in monthly payments of $6,238, as opposed to $6,818 for a 25-year term. However, this lower payment comes at a cost, adding up to $200,000 more in interest over the period.
• Toronto: Homeowners face a similar scenario. The lower monthly payment of $5,804 (30-year) versus $6,344 (25-year) translates to an additional $186,263 in interest with the longer mortgage term.

More Affordable Markets: Regina and Moncton

• Regina: A benchmark price of $313,100 means a difference of $152 less per month with a 30-year mortgage. However, this choice increases the total interest by $52,370 compared to a 25-year term.
• Moncton: With benchmark prices under $400,000, homeowners here will pay at least $55,000 more in interest with a 30-year mortgage, even though the monthly savings are less than $200.

Making the Right Choice

Choosing the right mortgage term is a balancing act. If your priority is to minimize monthly expenses and maximize cash flow in the short term, a 30-year mortgage could be advantageous. However, if you are comfortable with higher monthly payments and aim to save on the total interest paid over the life of the mortgage, a 25-year term might be better suited for you.

Conclusion

For GTA buyers and sellers, understanding the implications of different mortgage terms is crucial. Whether you opt for a 25-year or a 30-year mortgage, each choice has significant financial implications that should be carefully considered. If you need help navigating these options, consulting with a real estate expert can provide tailored advice based on your financial situation and long-term goals.

By understanding the trade-offs between different mortgage terms, GTA home buyers and sellers can make more informed decisions that align with their financial objectives. Whether you're buying your first home or considering a new investment property, the right mortgage can make all the difference.