40 Years Mortgage Fueling The Canadian Housing Market

Sky-high house prices are making home ownership less affordable to cash-strapped home buyers. Some economists and housing analysts are arguing that longer amortization is bad for home owners.

The danger in stretching a 25-year mortgage to the 40 year CMHC mortgage is that it will hurt home buyers who in the first place cannot afford to buy their own homes. The program is a two-edged sword. Yes, the lower monthly mortgage payment enable home owners in buying their homes, but it will also likely become a huge financial burden to the home owners.

A recent article in the Toronto Star highlighted the effect of longer term mortgage on the Canadian housing market:

There's a revolution going on in Canada's housing market, one that is propping up prices and extending the boom.

More buyers are choosing mortgages with longer payback periods.

By stretching payments over 30 to 40 years (instead of the usual 25), they can enter the market sooner or buy a better property.

Mortgages with longer amortizations have caught on like a house on fire (pardon the pun).

"About 60 per cent of first-time buyers are opting for a 40-year mortgage," says Craig Alexander, deputy chief economist at TD Bank.

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