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The proposal for a 50-year mortgage, suggested in the U.S., has sparked mixed reactions. While it could lower monthly payments for homebuyers, experts argue the long-term costs are significant. Extending the loan period means paying much more in interest, as early payments would mainly cover interest rather than the principal. This slow build-up of equity could leave homeowners vulnerable to financial risk, especially if market conditions change.
Critics also raise concerns about the interest rates on a 50-year mortgage, which would likely be higher than a 30-year loan, reducing any potential savings. With minimal savings in monthly payments, and the risk of slow equity growth, the 50-year mortgage may not offer the benefits it's touted to provide. Many experts believe the solution to housing affordability lies in increasing housing supply, not extending mortgage terms.
In Canada, the idea of extending mortgage amortization periods is unlikely to gain traction due to differences in the mortgage systems. Unlike the U.S., where mortgages are securitized and sold, Canada's system is more risk-averse, relying on deposits for mortgage funding. This makes longer mortgages less feasible in Canada. Over the past two decades, Canada has reduced amortization periods, and there’s little appetite for extending them again.
Canada has already tightened rules, cutting amortization from 40 years to 35 years after the 2008 financial crisis. Today, the standard amortization is 25 years for insured borrowers and 30 years for uninsured borrowers. While there have been discussions about extending amortization for first-time homebuyers, these changes have been limited, and there is no indication that Canada will follow the U.S. model of longer mortgages in the near future.
Experts caution against extending mortgage terms in both countries, arguing that while it might ease monthly payments, it increases long-term financial risk. The focus, they say, should be on increasing housing supply to address affordability rather than offering longer loan periods.