Canadian homebuyers have a growing appetite for long-amortization mortgages – if their purchase habits are any indication. For decades, homebuyers viewed the 25-year mortgage as the standard entry point of homeownership. But over the past year, the popularity of the new longer amortization mortgages has skyrocketed. Canadian homebuyers are increasingly opting for mortgages with up to 40-year amortizations: the period of time mortgage payments of principal and interest are made. At the end of the amortization period, the mortgage is paid off.

Mortgage Architects, a national mortgage brokerage firm, reviewed more than 10,000 applications between January 1 and July 31, 2007 and found that close to 40% of consumers opted for amortization periods of 35 years or more. A major bank recently reported that half of new insured mortgages are for 35- and 40-year amortizations, with 25% of refinances going for the longer loans.

Most homebuyers, it should be said, have no plans to take that long to pay off their mortgages. But the longer amortization keeps payments low – a real boon to new homebuyers trying to get into the market. Substantial increases in Canadian home prices have eroded affordability, causing some homebuyers to compromise just to get their foot in the door. For some that means a smaller home. For others, the compromise is in the financing. On a $250,000 mortgage at 6%, the monthly mortgage payment is reduced by $237 when opting for a 40-year amortization instead of 25 years.

Others are using this new option to free up some monthly funds for other uses: investment in a business, retirement savings, home improvements, education expenses, or just to lighten the monthly cash flow for a time. Consider parents who choose to take an extra long maternity leave or stay at home with young children, for example. They can choose to stretch out the amortization period for a term – let’s say for the next five years – then step back into a higher payment later.

There are many homebuyers who know their mortgage payments will get easier over time as their incomes grow. Those homebuyers, then, can move up to the home they want now – knowing that they can reduce their amortization period at a later date to pay their home off more quickly. Let’s say, for example, that a couple can afford $1,500 a month for a mortgage. They could borrow about $30,000 more on a 40-year mortgage than with a standard 25-year mortgage at 6%. In five years, they may ramp up their payment to $2,000 – slashing several years and thousands of dollars from the total mortgage cost.

Although questionable mortgage lending has led to some serious financial fallout in the U.S., it should be noted that this has not happened in Canada – where both lenders and brokers have been more prudent about ensuring that borrowers are making sensible decisions. Here in Canada, the longer amortizations are providing a common-sense opportunity for qualified homebuyers.

The real benefits are flexibility and choice. With the new long amortization mortgages, Canadians have some additional tools at their disposal that can play a role in helping them achieve their dreams of homeownership and financial security.