Federal government to allow 30-year amortization for first-time buyers
Some advocates are praising Ottawa’s move to lengthen the amortization period on insured mortgages for certain homebuyers, but say expanding the policy to all Canadians would help make home ownership more affordable.
Speaking in Toronto on Thursday, Finance Minister Chrystia Freeland announced the federal government will allow 30-year amortization periods on insured mortgages for first-time homebuyers purchasing newly built homes.
The change will take effect Aug. 1.
Under the current rules, if a down payment is less than 20 per cent of the home price, the longest allowable amortization — the length of time a homeowner has to repay their mortgage — is 25 years.
“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,” Freeland said in a statement.
“By extending amortization, monthly mortgage payments will be more affordable for young Canadians who want that first home of their own.”
Mortgage Professionals Canada CEO Lauren van den Berg called it a “step in the right direction” and said extending the amortization period “will help level the playing field for first-time homebuyers.”
“We know that this is going to allow greater opportunities for home ownership and will ultimately contribute to economic revival and economic recovery,” she said. “But more still needs to be done for all Canadians to have that dream of home ownership within sight.”
Van den Berg said the government should expand the option to all Canadians purchasing a home, regardless of whether it is a new build or a pre-existing home.
“There are a lot of areas, particularly in the Greater Vancouver area and in the Greater Toronto Area, where you have no choice but to build up, so the possibility for new builds are not the same across the country.”
Ratesdotca mortgage and real estate specialist Victor Tran also raised concerns about how effective the change would be based on the eligibility criteria.
“While it’s currently possible to get an insured mortgage with a new build, it’s rare,” he said in a statement.
Tran also pointed out many properties in Vancouver and Toronto are priced at more than $1 million, which typically means buyers have to take uninsured mortgages.
But Canadian Home Builders’ Association CEO Kevin Lee said the announcement would be a “game changer.” The group has also been in favour of longer amortization periods, saying five more years would help with affordability and spur more construction.
“This measure will also go a long way to enable our sector to respond to the government’s goal of getting 5.8 million new homes built over the next decade,” he said in a statement.