Payment shocks at renewal due to shorter mortgage terms have become a growing concern for many Canadians. This has led to questions about whether adopting longer mortgage terms, like those in the U.S., would provide greater financial stability.

While Canadian lenders can theoretically offer 15-, 20-, 25-, or even 30-year mortgage terms, market realities and consumer preferences pose substantial challenges. According to Ben Rabidoux of Edge Realty Analytics, the main issue is the high interest rate risk and limited prepayment penalties banks can charge if a mortgage is broken early.

With 76% of outstanding mortgages expected to renew by 2026, payment shocks could lead to a rise in mortgage delinquencies. If interest rates remain unchanged, the median payment increase for all mortgage borrowers would be over 30%, and fixed-payment variable-rate borrowers could see their payments rise by over 60%.

Historically, Canadians had more options for longer mortgage terms. Bruno Valko of RMG recalls a time when 15-, 18-, and 25-year terms were available. However, today, longer terms are rare due to the higher interest rates and penalties for breaking the mortgage early.

Despite these challenges, the idea of longer mortgage terms in Canada may gain traction. With recent interest rate fluctuations, more Canadians might be willing to pay a premium to lock in rates for longer periods. Valko suggests that a shift to longer terms could provide greater financial stability and reduce anxiety over renewals.

While it's not financially feasible for most banks today, Valko believes Canada may eventually adopt longer mortgage terms similar to those in the U.S. This change could offer Canadians more choices to manage their personal financial risks.
While it's not financially feasible for most banks today, Valko believes Canada may eventually adopt longer mortgage terms similar to those in the U.S. This change could offer Canadians more choices to manage their personal financial risks.