The 30-year fixed-rate mortgage in Canada, the grandest of all mortgage plans, is the choice of every nine out of ten home buyers, and for good reasons. Let’s explore the advantages and disadvantages of a 30-year mortgage plan compared to a 25-year (or lower) mortgage in Canada.
Advantages of a 30-year mortgage in Canada.
1. Low monthly payments
The biggest advantage of stretching your mortgage on 30 years is that it provides an extended period to pay off the loan. This effectively translates into low monthly instalments per month. No matter the size of your mortgage, we are talking about as many as 360 months to pay off. This can potentially leave you with extra funds to enjoy other things!
2. Provides flexibility
The flexible scope of a 30-year mortgage plan is truly heartwarming. To begin with, the 30-year mortgage is also known as “uninsured mortgage.” This means that, unlike the 25-year mortgage, you can transfer this mortgage plan to a new home value worth over $1,000,000. For instance, if the new worth of your home value is $750,000 and in the next 3 years, you decide to buy a property worth $1,000,000, the 30-year mortgage can easily travel from your earlier home to this new one.
Needless to say, the 25-year plan does not offer this flexibility.
3. Freedom to pay per convenience
The 30-year time provides extreme adaptability to make your payments faster or stick to the regular monthly amounts. By making the extra payments, you can pay off the loan quicker if you are able to do so. This means you are never stuck with 30 years if you decide you want to be done earlier!
4. Better purchasing power
Longer periods of repayment mean you can bank on being able to purchase more. Moreover, the 30-year plan qualifies more buyers as compared to other mortgage plans.
Disadvantages of a 30-year mortgage in Canada
1. Higher interest rates
It’s clear that since lenders are not going to get the complete payment for a longer period, they tend to charge higher interest rates for a 30-year mortgage. Not to mention, the 30-year long repayment of a longer amortization mortgage automatically adds up to a high-interest paid as compared to a shorter amortization.
2. Higher maintenance costs
The 30-year mortgage plan attracts buyers to go for pricier houses. As a result, they face steeper costs for taxes, higher utility bills, and upkeep expenses. All 30-year mortgage buyers might not afford it in the long run, so make sure you do not overtake more than you can manage.
Conclusively, it is important to consider the pros and cons before making a decision. If you can afford the higher interests and upkeep costs, you may find the 30-year plan more feasible than a 25-year one, where the loan is paid off faster. Whichever the case, make sure you properly weigh your options. Let’s discuss what works best for you!