Advocates are commending Ottawa’s Department of Finance decision to extend the amortization period on insured mortgages for some homebuyers, while suggesting that expanding this policy to all Canadians would enhance home ownership affordability.
During a speech in Toronto on Thursday, Finance Minister Chrystia Freeland revealed that the federal government will now permit a new 30-year amortization incentive for first-time home buyers of newly built homes. This policy will be effective from August 1.
Presently, if a down payment is less than 20% of the home’s price, the maximum amortization period allowed is 25 years.
Freeland acknowledged the housing challenges faced by young Canadians, stating, “With a lack of housing options and soaring rent and home prices, younger Canadians feel disadvantaged. Extending amortization will make monthly mortgage payments more manageable for those aspiring to own their first home.”
Lauren van den Berg, CEO of Mortgage Professionals Canada, praised the initiative as a positive development and emphasized that extending the amortization period will create more opportunities for first-time homebuyers and stimulate economic recovery. However, she argued for a broader application of the policy to include all homebuyers, not just those purchasing new builds.
Van den Berg pointed out that in regions like Greater Vancouver and Greater Toronto, where vertical construction is more common, new builds are less prevalent, thus necessitating a broader policy application.
Victor Tran, a mortgage and real estate specialist at Ratesdotca, expressed concerns about the limited impact of the policy due to its specific eligibility criteria, noting that insured mortgages for new builds are uncommon. Tran also highlighted that many properties in high-cost areas such as Vancouver and Toronto exceed $1 million, leading buyers to opt for uninsured mortgages.
Conversely, Kevin Lee, CEO of the Canadian Home Builders’ Association, deemed the announcement transformative, arguing that longer amortization periods would aid affordability and encourage more construction. Lee noted this policy could also assist in meeting the government’s objective of building 5.8 million new homes in the next decade and alleviate the rental market by transitioning renters into homeowners.
In addition to the amortization changes, Freeland announced an increase in the amount first-time homebuyers can withdraw from their RRSPs, raising it from $35,000 to $60,000, effective April 16, coinciding with the federal budget release. This change reflects the growing size of down payments and the longer time required to save for them. Individuals who have made or will make withdrawals between January 1, 2022, and December 31, 2025, will now have up to five years to begin repayment, instead of two.
These amendments are designed to complement the First Home Savings Account, introduced last year, which allows prospective homebuyers to save up to $8,000 annually with a lifetime limit of $40,000. To date, over 750,000 Canadians have opened an FHSA since it became available last year.
Ottawa also announced modifications to the Canadian Mortgage Charter, including provisions for permanent amortization relief for eligible homeowners, allowing them to reduce their monthly mortgage payments to a more affordable level indefinitely.
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