Should I consider a mortgage amortization extension in Canada?

This piece was originally published on March 4, 2024, and was updated on February 26, 2025. 

If you’re worried about your mortgage payment going up because of rising interest rates, you’re not alone. According to Statistics Canada, the average five-year conventional mortgage rate in Canada has risen to 5.35% in January 2025, up from 3.58% in February 2022. This surge in rates has left many homeowners facing higher payments. More than half (57%) of Canadians renewing their mortgage in 2025 expect their payments to increase, with 22% anticipating a significant increase. 

One potential solution to help manage these higher payments is extending your mortgage amortization period (the length of time over which your payments are spread out). By taking longer to pay your mortgage, you can reduce your monthly payments and make them more manageable. But is it the right choice for you? Let’s explore whether extending your amortization is the best move in response to rising rates.

Also read: Amortization – Short vs. long term

What is amortization and how does it affect my mortgage payment?

The length of your amortization period directly affects your monthly mortgage payment. Here’s how amortization and mortgage payments are correlated:

• Shorter amortization periods (e.g., 15 or 20 years): You’ll pay off the loan more quickly, which means higher monthly payments. However, you'll end up paying less interest over the life of the loan, and you’ll build equity faster.
• Longer amortization periods (e.g., 25 or 30 years): You’ll spread the loan payments over a longer time, which means lower monthly payments. While this makes the loan more manageable in the short term, you’ll end up paying more interest overall because it takes longer to pay off the principal.

For example, let’s say you have a $800,000 mortgage and a five-year fixed mortgage rate of 4.10%. With a 25-year amortization, your monthly payment would be $4,252. If you chose to lengthen your amortization to 30 years with all other factors remaining the same, that payment would lower to $3,850.

Why would I want to extend my amortization period?

If you’re facing a mortgage renewal soon, you may be surprised by how much your monthly payments have increased due to rising interest rates. Bank of Canada recently reported that about 60% of outstanding mortgages will renew before the end of 2026, and about 40% of those could be subject to a higher interest rate at renewal.

Imagine you took out a $962,000 ($1,000,000 minus the minimum down payment of $75,000) mortgage on January 1st, 2020, with the day’s best 5-year fixed rate of 2.49%, and amortized it over 25 years. Under this arrangement, you would have paid $4,305 a month and aimed to be mortgage-free in the year 2045.

Now, your mortgage is up for renewal on January 1, 2025, and the best five-year fixed mortgage rate available is 3.89%. At this point, you’ve paid a total of $147,947 toward your mortgage principal over the first five years of your mortgage, leaving you with a balance of $814,053 at renewal time. Using Ratehub.ca’s renewal calculator, we can see that renewing for another five-year term at the new, higher, rate, with a remaining 20-year amortization, will result in a monthly payment of $4,873 – a difference of $568 each month. 

For a Canadian household trying to keep up with inflation and overall higher cost of living, that’s no small chunk of change.

But this payment assumes you’re continuing on with the original amortization; if you extend the amortization back to 25 years and plan to keep paying until 2050, you can get your payment down to a more manageable $4,234 – $81 less than the original payment per month.

What are the pitfalls of extending my mortgage amortization?

While extending your amortization will help keep your monthly payments in check, there are many downsides to this strategy.

1. Longer time to pay off your mortgage

The most obvious drawback is the added time it will take to pay off your mortgage. Using the example above, extending your amortization would push your payments into the year 2050. If you’re 45 years old today, you wouldn’t pay off your mortgage until you’re 70. This extended timeline might not align with your long-term financial goals, especially if you plan to retire earlier or want to be debt-free sooner.

2. Higher interest costs

A less obvious but significant downside is the extra interest you’ll pay over the life of the mortgage. Without extending the amortization period, our example mortgage would cost an estimated $355,386 in interest over the remaining 20 years. Extending the amortization period to 25 years, however, raises the estimated interest cost to $456,051 – an expense of over $100,665.

In this example, extending the amortization by just five years adds $100,665 to the total cost of borrowing over the lifetime of the mortgage.

3. Refinancing costs

There’s also an immediate cost to extending your amortization period, as it will require you to refinance your mortgage. While there are upsides to refinancing (like potentially getting a better mortgage rate or consolidating debts into your mortgage), there are fees to consider. In addition to paying a real estate lawyer to do the paperwork, you may have to pay for an appraisal and you’ll likely pay your existing lender a mortgage discharge fee. In all, the cash cost of refinancing your mortgage will likely range from $1,500 to $3,000.

4. Stress test requirement

It’s important to note that if you choose to extend your amortization period while renewing your mortgage with a new lender, you may be required to pass the stress test. As of November 21, 2024, borrowers who switch to a new lender will be exempt from the stress test only if their mortgage size and amortization period remain the same. However, if you extend your amortization period, you will need to undergo the stress test, which could affect your ability to qualify for the new mortgage or impact the rate you receive. 

Extending my amortization or hitting my trigger rate: What’s the difference?

It should be noted that opting to extend your amortization period at renewal or during a refinance is a different scenario than borrowers who have hit their trigger rate, and have needed their amortizations extended in order to keep them from negatively amortizing – a phenomenon that exploded in practice over the course of the Bank of Canada’s hiking cycle.

In these instances, with each rate increase, borrowers with variable-rate mortgages on a fixed payment schedule saw less and less of their payment contribute to their principal balance, and more of it serving interest. Many of these borrowers eventually hit the point where none of their payment went toward their principal balance, but instead, just covered the interest. This is known as hitting the “trigger rate.” 

At this point, lenders intervened with extraordinary measures to prevent the mortgage from becoming unmanageable and to avoid defaults. One of the key measures was temporarily extending the amortization period, sometimes by decades, to keep the mortgage viable. Essentially, the lender would stretch out the timeline for repaying the loan to keep monthly payments at a level the borrower could manage.

However, this solution was temporary. Once the mortgage comes up for renewal, these borrowers will need to revert to their original amortization schedule, which means their payments will likely increase as the amortization period shortens and the interest rates may remain higher.

While extending amortizations for distressed mortgages has been criticized as a high-risk practice by Canada’s banking regulator, OSFI, it is a form of support that has been endorsed by the Financial Consumer Agency of Canada (FCAC). In 2023, it was codified under the Canadian Mortgage Charter, offering some protection for homeowners in distress.

Also read: How much interest would you pay on a 90-year mortgage?

How can you extend amortization at renewal?

The first step is to reach out to your current lender. They’ll assess your current financial situation and help you understand how extending your amortization period will affect your monthly payments and the overall cost of your mortgage. Be sure to ask your lender about the specifics, such as:

• How much your monthly payment will be.
• The amount of extra interest you’ll pay over the life of the loan.
• Whether you’ll need to pay any fees for extending your amortization.
• The length of the new amortization period and how it fits with your financial goals.

It’s also a good idea to check in with a mortgage broker for advice. Because mortgage brokers work with multiple lenders, they can access more options and get mortgage companies competing for your business. And their services are free for consumers, so there’s no risk involved.

What other options do I have to afford mortgage payments?

If your rising mortgage payment is straining your budget, you may have other options aside from extending amortization period. 

Refinancing

Refinancing your mortgage at renewal time allows you to adjust your loan terms with your current lender or switch to a new lender. This could be a good opportunity to secure a lower interest rate or adjust the structure of your mortgage to better suit your financial situation. Refinancing may include costs like appraisal fees or legal fees, but it can provide you with more favorable terms and potentially lower monthly payments.

Switching to a fixed-rate mortgage

If your current mortgage is a variable-rate loan, switching to a fixed-rate mortgage during renewal can give you stability and protect you from future rate increases. While this might raise your monthly payments in the short term, it offers predictability and could be a safer option if you're concerned about future interest rate hikes. Watch the video below to learn more.

Making lump-sum payments

If you’ve built up extra savings or received a windfall (like a bonus or tax return), using it to make lump-sum payments during your renewal can help reduce your principal. This would result in lower monthly payments going forward and save you money on interest over the long term. Be sure to check with your lender to confirm the limits for lump-sum payments without penalties.

Deferring payments 

In some cases, you may be eligible to defer your mortgage payments for a short period. This can provide temporary relief if you're facing financial hardship. However, keep in mind that deferred payments will eventually be added to your loan balance, increasing your mortgage amount and the interest paid over time. Make sure to understand the long-term impact before choosing this option.

Downsizing

If you’re unable to keep up with your mortgage payments and feel that your current home no longer fits your needs, downsizing could be an option. Selling your current home and purchasing a smaller, more affordable one may allow you to pay off a portion of your mortgage, reduce monthly payments, and free up cash for other financial goals.

The bottom line

Extending your mortgage’s amortization period can reduce your monthly payments, but at a significant cost. Consider other options before choosing this strategy, and ask a mortgage broker for advice to find out if there are better ways to make your mortgage payments more manageable.

Also read: 

• Renewing your mortgage in 2025? Here’s what to expect
• Should I Buy a House in a Recession?
• The New Tax-Free First Home Savings Account
• The Bank of Mom and Dad and Your Down Payment
• How Does the Rising Stress Test Impact Mortgage Affordability?
• Should You Switch From a Variable-Rate to a Fixed-Rate Mortgage?
• Is a Short-Term Fixed-Rate Mortgage Right For You?

*Based on a $700,000 home price, 10% down payment, amortized over 25 years, and a five-year fixed mortgage rate of 4.64% vs. 4.39%.