First-time homebuyers in Canada will soon be able to spread out their debt commitments over a longer period.
Federal Minister of Finance Chrystia Freeland announced today that the Government of Canada will implement policies allowing for 30-year mortgage amortization periods for first-time homebuyers purchasing newly built homes.
This new longer amortization timeline will be effective August 1, 2024, as part of the federal government’s 2024 budget.
It increases the amortization limit for insured mortgages by five years from the current timeline of 25 years. The intention is to provide more young Canadians with a more affordable monthly mortgage payment given the current high-interest rate climate.
The Bank of Canada is expected to begin its lowering cycle for the policy interest rate later in 2024, but analysts predict it could be at least one or two years before the interest rate reaches a moderated level that will have a more meaningful impact on borrowers.
Also announced today, the federal government will increase the Home Buyers’ Plan limit from $35,000 to $60,000, which is an existing program that lets individuals withdraw from their RRSP to buy or build a qualifying home. This means first-time homebuyers can use the tax benefits of RRSP contributions to save up to $25,000 more for their downpayment.
Additionally, changes will be made for individuals who withdraw from their Home Buyers’ Plan between January 1, 2022, and December 31, 2025. They will see their repayment grace period extended by three years. This provides first-time homebuyers under the program with up to five years before they need to start repayment.
“Faced with a shortage of housing options and increasingly high rent and home prices, younger Canadians understandably feel like the deck is stacked against them. We are changing that,” said Freeland today.
“What we are announcing today will make a downpayment much more attainable for younger Canadians. And by extending amortization, monthly mortgage payments will be more affordable for young Canadians who want that first home of their own.”
In reaction to the new 30-year amortization period, RATESDOTCA mortgage expert Victor Tran says it is important to emphasize that the new policy only applies to new-build housing projects and insured mortgages. Developers usually require a minimum 20% deposit for such projects, which excludes insured mortgages.
“While it’s currently possible to get an insured mortgage with a new build, it’s rare. For hot markets such as Vancouver and the Greater Toronto Area, most new condo and freehold builds are priced over one million, which means buyers have to take uninsured mortgages,” he said.
Under the current 25-year amortization per $100,000 of mortgage, a five-year fixed rate insured mortgage at 5% would be about $582 per month. For an additional five years with a 30-year amortization, monthly payments would be about $534 per $100,000 of mortgage.
More housing-related measures are expected to be announced in next week’s federal budget.