Canada Housing Market

In a move celebrated by housing advocates, the Canadian federal government has announced an extension of the amortization period for insured mortgages targeted at first-time homebuyers. This policy adjustment, declared by Finance Minister Chrystia Freeland in Toronto, aims to make homeownership more accessible amid escalating property prices and rents.

Key Changes to Amortization Rules

Starting August 1, 2024, first-time homebuyers purchasing newly constructed homes can benefit from a 30-year amortization period on insured mortgages. Previously, the maximum amortization period was capped at 25 years for buyers whose down payments were less than 20% of their home price. This extension is expected to lower monthly mortgage payments, providing significant relief to young Canadians struggling to buy their first home.

Industry Responses

Lauren van den Berg, CEO of Mortgage Professionals Canada, has praised the adjustment, labeling it as a “step in the right direction” that helps “level the playing field for first-time homebuyers.” However, van den Berg and others suggest that expanding this benefit to all Canadians, including those purchasing pre-existing homes, would offer a more comprehensive solution.

Critiques of the policy have also emerged, particularly concerning its impact in high-cost areas like Vancouver and Toronto, where many properties exceed the $1 million mark — a range that necessitates uninsured mortgages. Victor Tran, a mortgage and real estate specialist at Ratesdotca, pointed out the rarity of obtaining insured mortgages for new builds under the current market conditions.

Potential for Wider Economic Impact

Kevin Lee, CEO of the Canadian Home Builders’ Association, believes the new policy could be a “game changer” for the housing market. By facilitating easier access to homeownership, the government could stimulate construction activities and help achieve its goal of adding 5.8 million new homes over the next decade. This increase in construction is anticipated to not only meet housing demands but also alleviate pressures in the rental market.

Additional Financial Incentives

Complementing the amortization extension, the government plans to increase the limit on what first-time homebuyers can withdraw from their Registered Retirement Savings Plans (RRSPs) to purchase a home. Effective April 16, 2024, the new withdrawal cap will be $60,000, up from $35,000. This adjustment reflects the growing financial challenges of securing a down payment in today’s economic environment.

Moreover, the repayment period for these withdrawals has been extended, giving new homeowners up to five years to start repayments, compared to the previous two-year timeframe. These changes are designed to work in tandem with the First Home Savings Account (FHSA), which encourages Canadians to save for homeownership with favorable tax benefits.

Looking Forward

As the market adapts to these new measures, more than 750,000 Canadians have already utilized the FHSA since its launch, signaling strong public engagement with the program. The full impact of these initiatives on Toronto’s housing market and nationwide will be closely watched by industry experts and policymakers alike.

These measures represent a significant step by Ottawa to address the affordability crisis in Toronto and beyond, aiming to transform the dream of homeownership from aspiration to reality for many Canadians.

Source: Ottawa to allow 30-year amortization for first-time buyers’ mortgages on new homes (thestar.com)