Budget to ease borrowing rules for first-time homebuyers
New 30-year mortgages, more RRSP money
Canada will loosen the rules on mortgages to allow firsttime buyers to take out 30-year loans when they purchase newly-built homes.
The change will come into effect on Aug. 1, Finance Minister Chrystia Freeland said Thursday. It’s a move that’s primarily aimed at younger voters who have been squeezed by soaring housing prices and high interest rates.
“First-time homebuyers will now have 30 years to pay
off their mortgage instead of 25,” Freeland said in Toronto. “That translates to lower monthly payments so more younger Canadians can afford to pay that monthly mortgage on a new home.”
Canada is dealing with a huge shortage of homes to accommodate its rapidly growing population. Housing starts rose in the early part of the COVID-19 pandemic, but construction activity softened when interest rates began to rise. The government’s housing agency has estimated that at the current pace of activity, by 2030 Canada will be millions of homes short of what is needed to create a more affordable market.
Canada saw housing starts of an annualized 253,468 units in February, the most in five months, according to Canada Mortgage & Housing Corp. But the population grew by about 1.3 million last year.
The slow pace of building has heaped pressure on Justin Trudeau’s government to try to boost development. The prime minister hinted last week that mortgage reforms were coming in Freeland’s April 16 budget.
Canada briefly experimented nearly two decades ago with allowing insured mortgages as long as 40 years, but reversed course when poor mortgage underwriting by U.S. lenders led to cascading defaults that contributed to the global financial crisis in 2008.
The current 25-year limit on amortizations applies to mortgages where default insurance is required. It’s been in place since 2012.
Such insurance is mandatory in cases where the buyer is putting down less than 20 per cent of the price of the home. In Toronto and Vancouver, the benchmark price of a home is more than $1 million, meaning a downpayment of more than $200,000 is needed before an individual or family can qualify for an uninsured mortgage with a longer amortization period.
Freeland also pledged that existing homeowners who’ve had to stretch their amortization periods due to financial hardship may be able to keep those longer repayment periods, without fees or penalties.
“Canadians work really hard to be able to buy and afford their homes, and it is only fair that mortgage lenders should help Canadians do everything they can to afford their homes at a time of higher interest rates,” she said.
She also announced that first-time homebuyers will be able to pull more money from their registered retirement savings plans to use in a downpayment on a home. The legal limit is being raised to $60,000 from $35,000.