Buy vs rent with a 25 vs 30-year amortization

What amortization changes, and what it does not

Amortization is the number of years it would take to pay a mortgage off completely if you kept renewing at the same terms. It is not the same as the term, which is the stretch (often five years) for which your rate and conditions are fixed. Stretching the amortization spreads the same loan over more payments, so each payment is smaller.

It does not change the price, the down payment or the closing costs. What it changes is the monthly payment, the amount of interest you pay along the way, how quickly the balance falls, and, on an insured mortgage, the size of the default insurance premium.

The examples below use one set of illustrative inputs for every scenario: a $600,000 home in Alberta, a 4.5% mortgage rate with a five-year term and the same rate at renewal, rent of $2,300 a month growing 3% a year, 3.5% yearly appreciation, 5.5% return on the renter's investments, property tax at 0.65% of value, home insurance of $1,500 a year, maintenance at 1% of value a year, and a 10-year horizon. These are planning inputs, not current market figures.

The numbers side by side

The table compares four cases. The 20% down cases are uninsured. The 10% down cases are insured, so the default insurance premium is added to the mortgage. The interest and balance rows cover the first 10 years only, since that is the horizon used for the comparison.

The engine applies the extra 0.20% premium for an amortization longer than 25 years, which is why the 10% down premium rises from 3.10% to 3.30% of the loan.

What the longer schedule buys you, and what it costs

The payment falls by about $236 a month at 20% down and about $269 a month at 10% down. That is real breathing room in a monthly budget, and it can matter if your income is uneven or you want to keep more cash available.

The cost shows up elsewhere. Over the first 10 years you pay about $7,297 more interest at 20% down and about $8,901 more at 10% down. After 10 years the balance is also higher, by about $35,669 and $42,236, so you own less of the home. At 10% down you additionally pay $1,080 more in insurance premium, which is added to the loan and accrues interest.

In short, a 30-year schedule moves cost into the future. Whether that is a good trade depends on what you do with the monthly difference, which the next section explains.

Why the 10-year result barely moves

It may seem surprising that the buyer-minus-renter gap changes by only $1,772 at 20% down and $330 at 10% down, even though the payment is hundreds of dollars lower. The reason is the fair-comparison rule: both households spend the same total monthly housing budget, and whoever spends less invests the difference.

When the mortgage payment drops, the owner's monthly cost drops, and so does the budget the renter is assumed to match. The renter has less to invest each month, and the buyer builds less equity. Both net worths fall, and the gap between them stays close to where it was.

The lesson is that a lower payment does not create wealth on its own. It changes the timing. If you would invest the monthly saving in a TFSA, RRSP or FHSA, as covered in rent and invest the difference, the longer amortization can be neutral or slightly helpful in this example. If the money would simply be spent, the buyer ends up with a larger mortgage balance and no offsetting investment.

Who can use a 30-year amortization

For insured mortgages, a 25-year amortization is the normal maximum. A 30-year insured amortization is available to first-time buyers and to buyers of newly built homes under the rule that took effect on December 15, 2024. Please confirm eligibility and the current rule with your lender or insurer before you rely on it.

Insured mortgages are those with less than 20% down, and the insured price must be under $1.5 million. For a home at $600,000, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining $100,000, which is $35,000. The 10% down case in the table is therefore well within that rule.

At 20% down there is no default insurance, so the amortization options come from the lender rather than the insurer. Ask which schedules are offered and whether pricing differs. Lenders also run the stress test: you must qualify at the greater of your contract rate plus 2 percentage points or 5.25%. See the mortgage stress test and buy vs rent and CMHC insurance and buy vs rent.

Questions to settle before choosing a schedule

A longer amortization is a financing decision first and a buy vs rent decision second. It is worth testing both schedules in the main calculator and the mortgage payment tool with your own figures.

• Will I use the monthly saving for a specific goal, such as an emergency fund or registered-account contributions, or would it be absorbed by other spending?
• Does my mortgage allow extra payments or a higher payment later, so I could shorten the schedule if my income rises? Check the prepayment terms.
• How much more interest am I comfortable paying for lower payments today?
• If I need to sell in five years, how much more of the balance will I still owe?
• Do I qualify for a 30-year insured amortization, and does the lender price it differently?