30-year amortization lifts an Ottawa first-time buyer by $30,700

My October 13 post assumed 25 years

Two weeks ago I rebuilt my $110,000 household example and landed on a purchase price of about $561,000. That math used a 25 year amortization and 20% down. A first-time buyer with less than 20% down does not have to use 25 years. Since December 15, 2024 the federal rules allow 30, and I left it out. Here is what it does to the same household.

The rule, from the sources

Finance Canada's September 2024 announcement set it up: 30 year amortizations on insured mortgages for all first-time buyers and for anyone buying a new build, and the insured price cap going from $1 million to $1.5 million, both from December 15, 2024. CMHC's Home Start fact sheet supplies the conditions that matter. The loan to value has to be above 80%, so you are putting less than 20% down. At least one borrower must be a first-time buyer, or the home must be newly built. The stress test stays the same: the greater of your contract rate plus 2 points or 5.25%, against 39% GDS and 44% TDS limits. CMHC also said in 2024 that qualified first-time buyers choosing 30 years pay an extra 20 basis points on the premium.

Whether a given lender offers it on your file is a question for your mortgage professional.

The inputs

Same as October 13, with one update. The 5 year Government of Canada yield was 3.50% on October 22, per the Bank of Canada, so I use my 65 basis point lender spread assumption from last weekend's bond post. That is a contract rate of 4.15% and a qualifying rate of 6.15% (October 13 used 6.25% when the yield was 3.60%). The spread is my estimate, not a lender quote.

Budget: $110,000 divided by 12, times 39%, is $3,575 a month. Take off $120 for heat and $3,455 is left for principal, interest and tax. Tax is 1.1% of price, the shortcut I checked and found rough, kept here so the numbers line up. Premiums come from CMHC's table: 3.10% at 10% down on 25 years, 3.30% on 30. The premium is added to the loan, and the stress test runs on the whole loan. Semi-annual compounding throughout.

Same income, two answers

Payment per dollar of loan at the 6.15% qualifying rate is 0.006487 over 25 years and 0.006042 over 30. The ratio is 0.9314, so the qualifying payment is 6.9% lower.

10% down, 25 years: loan per dollar of price is 0.9 times 1.031, or 0.9279. Monthly cost per dollar of price is 0.9279 times 0.006487, plus 0.000917 of tax (1.1% divided by 12), which is 0.006937. Then $3,455 divided by 0.006937 is about $498,100.

10% down, 30 years: 0.9 times 1.033 is 0.9297. Times 0.006042 is 0.005617, plus 0.000917 is 0.006534. Then $3,455 divided by 0.006534 is about $528,800.

That is $30,700 more house, 6.2%, for the same paycheque. Cash down goes from $49,810 to $52,876. For comparison, the 20% down, 25 year case at 6.15% comes to $565,800, up from $561,400 because the yield slipped 10 basis points. But it needs $113,200 in cash, which is the real reason many first-time buyers are in the 10% group at all.

It still does not clear the benchmark townhouse

OREB's September townhouse benchmark is $546,500. With 10% down the income needed is $120,300 on 25 years (housing of $3,911 a month, times 12, divided by 0.39) and $113,600 on 30 years ($3,691). The household at $110,000 is $10,300 short on 25 years and $3,600 short on 30. The longer amortization closes most of the gap and not all of it.

What the extra five years cost

On that townhouse at a 4.15% contract rate, 10% down: the loan is $491,850 plus a premium of $15,247 on 25 years ($16,231 on 30), so $507,097 against $508,081. Payments are $2,709 and $2,459. That is $250 a month of breathing room.

The price is $984 more in premium, plus 8% Ontario sales tax on it ($79), paid in cash at closing. And if the rate stayed at 4.15% for the whole amortization, total interest would be $305,551 against $377,280, which is $71,729 more. The rate will not stay put for 30 years, so read that as scale, not a forecast. The 10% line itself is worth a look before you decide how much to put down.

The 20% line cuts the other way

Because 30 years needs a loan to value above 80%, a buyer holding $117,000 does not automatically do best by putting all of it down. At 20% down on 25 years the household qualifies for about $565,800. Put 19.99% down on a 30 year amortization (premium 2.80% plus 0.20%, so 3.00%) and the same math qualifies for about $586,000. That is $20,200 more price, at a cost of about $14,065 in premium and $1,125 in sales tax. I am not telling anyone to do that. I am saying qualifying and cost move in opposite directions here, and buyers who treat 20% as the finish line should know the structure changes at that line.

What I would do

Ask your lender or broker to run your income at 25 and at 30 years, with the premium included, before you set a price range. The difference decides which houses are even on your list. I sell houses. I do not arrange mortgages and this is not mortgage, tax or legal advice, so the choice between 25 and 30 years belongs with a mortgage professional who sees your whole file.

If you want me to line your numbers up against what is actually listed in Ottawa this week, call me at 613-262-6545 or email fil@613realtor.ca. Bring your pre-approval and I will bring the listings.