House Price Assessment: Additional Analysis
In response to questions from parliamentarians, this analysis considers the impact of extending the amortization period of mortgages to 40 years on house price affordability and presents mortgage debt service ratios across regions.
In October 2025, the Office of the Parliamentary Budget Officer (PBO) published the report, House Price Assessment – Update, which provided an updated assessment of house prices relative to borrowing capacity in Canada and in 11 Census Metropolitan Areas (CMAs). The results showed significant improvement in house price affordability at the national level as the affordability gap—the percentage difference between actual and affordable house prices—narrowed. That said, trends in affordability gaps diverged across the CMAs considered with improvement in some of the most exuberant markets and deterioration in some of the more affordable markets.
40-year amortization period assumption
To assess how longer mortgage amortization periods affect affordability, we calculate the house price affordability gap for Canada and selected CMAs assuming a 40-year amortization. These results are shown in Table 1 along with estimates from our October assessment, which were based on a 25-year amortization. Similar to previous assessments, the affordable house price is defined as the price consistent with the average mortgage debt service ratio (DSR) observed in a given CMA over 2012 to 2014, assuming a 25-year amortization period. The “affordable” house price in this framework reflects what a household with average income would be able to afford in August 2025 with a 40-year amortization period if they spent the same fraction of their income on mortgage costs as they did under a 25-year amortization in the 2012-2014 period.
Extending our assumed amortization period from 25 years to 40 years reduces a household’s monthly mortgage payment, resulting in smaller affordability gaps in all regions. In Vancouver, Winnipeg and Edmonton, moving to a 40-year amortization period would make the average house price affordable compared to our 25-year amortization benchmark. In all other regions, moving to a 40-year amortization period would result in a smaller, but still positive affordability gap for a household with average income. However, the extended amortization results in Table 1 should be interpreted with caution as they do not make any adjustment for potential changes to demand, house prices, credit risk or borrowing costs that would likely take place if 40-year amortization periods became widespread.
Although monthly mortgage payments would be reduced under this alternative assumption, total interest paid on loans would increase substantially as the principal would be repaid over a longer period of time. For example, the average Canadian household buying an average priced home at prevailing interest rates in August 2025 with a 33 per cent downpayment would have to pay almost 75 per cent more in interest over a 40-year amortization period compared to what they would pay with a 25-year amortization period.[^1]
Mortgage debt service ratios across regions
Following our latest assessment, parliamentarians expressed interest in house price affordability metrics that offer a comparable benchmark across different regions. Within each CMA, PBO’s affordability gap compares observed (average) house prices to an estimate of the affordable house price for a household with average income. Within our framework this gap is also equivalent to the percentage difference between the mortgage debt service ratio (in a given month) and its average observed over 2012 to 2014. To gauge household financial vulnerability, our assessments also highlight mortgage DSRs.[^2] Table 2 presents estimates of mortgage DSRs by region from our August assessment.
The mortgage DSR in our assessments measures the share of income that a household with average income would have to spend on mortgage payments to afford an average-priced house in their CMA. It is a metric commonly used by other institutions to compare affordability across regions.[^3] Although there is no universally agreed upon definition of an “affordable” DSR, we use the Canada Mortgage and Housing Corporation’s guideline for a (39 per cent) maximum Gross Debt Service (GDS) ratio for insured mortgages (which we adjust by subtracting utility costs, property taxes and condo fees so that it is comparable to the mortgage DSR) as an upper bound for comparing affordability across regions.[^4]
While the adjusted GDS ratio is a comparable upper limit, house prices may still be highly unaffordable for certain segments of the population even when debt servicing costs for the “average” household are well below this limit. For example, the average DSR may mask differences between repeat homebuyers, who are generally buying more expensive houses with larger downpayments and first-time homebuyers who generally buy less expensive houses but must borrow more to afford them.