Ex-CMHC chair outlines extensive work needed to bring longer mortgage terms to the Canadian market
Mainstream adoption of 30-year fixed mortgage terms in Canada is not out of the question, but it would require significant changes in the country's mortgage market, according to Robert Kelly, ex-chair of the Canada Mortgage and Housing Corporation (CMHC) and previous CEO of BNY Mellon.
In a recent interview, Kelly said that while such long-term mortgage options are common in the US, implementing them in Canada would not be simple and would need considerable adjustments from both regulators and lenders.
“In theory, there’s no reason why we can’t have a long-duration fixed-rate instrument in Canada,” Kelly told BNN Bloomberg.
Currently, Canadian mortgage terms are typically much shorter than those in the US, with five-year and two-year terms being the most common. While Canadian lenders do offer 10-year mortgage terms, Kelly noted that these are less popular due to their higher costs.
“Canada does have a 10-year product, but there doesn’t appear to be anyone interested in it. They’ll go for two years to five years; five years tends to be the norm. You can go to 10 years but it’s more expensive,” he explained.
On the other hand, Canadian mortgage holders enjoy certain benefits not available in the US, such as the portability of mortgages, which allows homeowners to transfer their mortgage from one property to another.
For 30-year fixed mortgage terms to become viable in Canada, Kelly said several regulatory changes would be needed, particularly concerning refinancing and pre-payment options.
He also pointed out the importance of attracting enough investors willing to hold these longer-term mortgages, as Canada’s major banks have traditionally favoured shorter-term loans.
“The reason why a 30-year didn’t exist in Canada is because banks hold them on their balance sheet. Most of their liabilities go out to five years, they don’t go out to 25 or 30 years,” said Kelly. “As a result, they don’t love long-dated mortgages because it creates the mismatch between the loans and the deposits that can be unbelievably risky.”
Read next: Will the Canadian government's new amortization rules improve housing affordability?
Kelly believes that with buy-in from regulators and lenders, 30-year fixed mortgage terms could eventually be introduced in Canada.
“You couldn’t do it overnight. You could do it over time, and the question is, do you have enough investors… that would actually buy these things instead of banks? Banks would probably own some of them, but not that many,” Kelly said. “It would be a long-term project, but it could happen over time.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
