Canadian Parliament is considering 40-year mortgages as a housing affordability fix. But would longer amortizations actually help?

The Parliamentary Budget Officer found that stretching amortizations from 25 to 40 years lowers monthly payments, but borrowers end up paying 75% more in interest. The non-partisan agency also warns their analysis doesn't account for broader consequences, ones that could undermine long-term housing and economic stability.

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The Math: Lower Payments, Much Higher Costs

The PBO's analysis follows a request from lawmakers asking whether 40-year amortizations improve housing affordability. In this context, affordability means the maximum mortgage payment a household can make without exceeding a prudent debt service ratio.

They use CMHC's 39% cap on gross debt as the threshold, but since that includes all carrying costs, the PBO reduces its calculation to 32-35% of gross income for mortgage payments alone.

For example, the average Canadian household buying an average priced home at prevailing interest rates in August 2025 with a 33% down payment would pay almost 75% more in interest over a 40-year amortization period compared to what they would pay with a 25-year amortization period.

Lower payments are the goal, and extending amortizations is the most commonly pitched solution. Stretch repayments of a $1 million loan from 25 to 40 years, make smaller payments for longer. The PBO confirmed this narrows the monthly payment affordability gap in major cities, but with a big catch. It comes at a significantly higher interest cost.

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Why This Matters Beyond the Numbers

The PBO cautions their analysis doesn't account for shifts in demand, prices, credit risk, or rates. As a non-partisan organization, they receive narrow questions that fail to appreciate the complexity of the situation.

They chose not to comment on the factors excluded from the analysis, but left an important hint about the areas that are a much bigger risk over the medium term.

Extending amortizations works like lower interest rates. It delivers lower payments that help buyers accelerate their purchases with a smaller down payment. This logic was promoted by central banks, discounting the influence of demand on prices, a central point to monetary policy.

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The Bank of Canada's Own Research Shows the Problem

When the Bank of Canada studied the issue and presented its findings to financial professionals, the results didn't quite support the dogma being repeated. They found lower payments, due to falling interest rates, only improved affordability briefly.

Smaller payments helped buyers more easily absorb higher prices, fueling price growth. A few buyers paid less in the short term, but the net effect was higher home prices and worse affordability.

The Bank of Canada isn't alone. The US Federal Reserve recently argued that lower payments didn't improve affordability either. While recent rate hikes pushed payments higher, they found that affordability would have eroded even more without them.

They go so far as to make the claim that affordability isn't just financing, but the actual price of a home as well.

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Short-Term Relief, Long-Term Damage

Over time, the additional interest cost means less disposable income, money that would otherwise support productive economic activity. Instead, more spending gets locked into non-productive sectors, further compounding Canada's productivity problem.

Then there's the cost of borrowing itself. Credit markets run on supply and demand, and ramping up credit consumption pushes up that cost. The response? Higher interest rates or higher inflation from monetary policy prioritizing political needs.

A long-term problem fueled by short-term attempts to prop up home prices after a 60% national surge from 2020 to 2022.

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The Grocery Store Analogy

If groceries were unaffordable, would the solution be higher credit card limits and longer repayment terms? That's essentially the logic behind stretching mortgage amortizations.

You're not solving the affordability problem. You're just extending how long it takes to pay for something that's too expensive. And in the process, you're paying dramatically more in interest while locking yourself into decades of debt.

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Who Benefits From 40-Year Mortgages?

Not first-time buyers struggling with affordability. They'll pay 75% more in interest over the life of their mortgage, money that could have gone toward retirement savings, their kids' education, or building wealth.

Not the housing market. Extending amortizations increases what buyers can afford to bid, which pushes prices higher. That helps sellers and benefits existing homeowners, but it makes the market less affordable for everyone trying to get in.

Financial institutions benefit. More interest paid over more years means more revenue. Developers and sellers benefit from higher prices. But the buyers taking on these 40-year mortgages? They're the ones bearing the cost.

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The Productivity Problem

Canada has a productivity crisis. GDP per capita has been declining. Wage growth lags inflation. And household debt is among the highest in the developed world.

Extending mortgage amortizations exacerbates all of these problems. More household income goes toward debt service, leaving less for consumption, savings, and investment. That drags on economic growth and productivity.

When households spend 35% to 40% of their income on housing costs, they have less to spend at local businesses, less to save for emergencies, and less financial flexibility to take risks like starting a business or changing careers.

That's not a recipe for a dynamic, growing economy. That's a recipe for stagnation.

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How Coldwell Banker Horizon Realty Can Help

At Coldwell Banker Horizon Realty, we understand that mortgage amortization decisions have long-term implications for your financial health. Whether you're a first-time buyer evaluating your options, a homeowner considering refinancing, or someone trying to understand how policy changes will affect the market, we provide the expertise and guidance you need.

Understanding the true cost of different mortgage structures requires professional insight from people who can walk you through the math and help you make informed decisions.

Contact Coldwell Banker Horizon Realty today to discuss your mortgage options and how different amortization periods will affect your financial future.

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The Bottom Line

The Parliamentary Budget Officer confirmed that 40-year mortgages lower monthly payments but cost borrowers 75% more in interest over the life of the loan. That's not a small difference. That's hundreds of thousands of dollars for the average homebuyer.

The appeal is obvious. Lower monthly payments make homes seem more affordable today. But affordability isn't just about monthly cash flow. It's about the total cost of ownership, the price you pay for the home plus all the interest over the life of the mortgage.

Extending amortizations doesn't solve the affordability crisis. It masks it. Buyers feel like they can afford more, so they bid prices higher. Sellers capture that increased buying power in the form of higher sale prices. And everyone ends up paying more, both in purchase price and in interest over time.

If the goal is actual affordability, making homes cost less, not just making monthly payments smaller, then longer amortizations move in the wrong direction. They increase what buyers will pay, which pushes prices higher, which makes homes less affordable for everyone.

Real affordability comes from increasing supply, reducing costs, and allowing prices to adjust to levels that match incomes. That's harder politically than extending amortizations, but it's the only approach that actually works long-term.

Forty-year mortgages might help some people qualify for a mortgage today. But they'll pay dearly for that qualification, 75% more in interest, while doing nothing to solve the underlying affordability crisis that created the problem in the first place.