The mortgage rules are changing. Effective August 1, 2024, the Canadian federal government will allow 30-year mortgage amortizations for first-time homebuyers with a secured mortgage who are purchasing newly built homes. What does this mean for potential homeowners and the housing market?
Previously, the longest available amortization on a primary residence was 25 years, which is simply the length of time a homeowner has to repay their mortgage.
Will Re-Sale Home Sales Suffer?
There is some controversy surrounding this announcement; some people don’t perceive this as a solution to the housing crisis; rather, they see it as contributing to higher prices and allowing homeowners to have debt for longer. Others believe the government is in cahoots with developers as it only applies to new construction.
How Will a Longer Amortization Affect Your Payment?
Undoubtedly, some people can now buy a home when they once could not. However, it also means you’re paying more in interest. On an $800,000 mortgage at 6%, the difference between 25 and 30 years is $300 a month.
A Stepping Stone to Your Forever Home
Although it’s a 30-year amortization, if this is your first home, it’s unlikely it will be the home you’re occupying in 30 years. So, if it’s a way to help you get into your first home and then leverage it to buy your forever home later, and perhaps on a shorter amortization, focus on the monthly costs, not the long-term expense.
Will the Ontario Real Estate Market Heat up in Q4 2024
Will these announcements fuel the Canadian housing market? Anything that makes homes more affordable should increase activity. If the Bank of Canada continues to lower rates, it stands to spur additional activity and financial relief for some buyers and homeowners.
More Changes to Help You Purchase a Home
Other changes in 2024 include that, effective April 16, 2024, through the First Home Buyer’s Plan, qualifying purchasers can withdraw up to $60,000 from their RRSPs tax and interest-free to be used toward their downpayment -a significant jump, up from $35,000. This, coupled with the Tax-Free First Home Savings Account, which allows Canadians to save up to $8,000 per year toward a home with a maximum lifetime contribution limit of $40,000, are great incentives. Especially when you consider that account growth isn’t taxed and money taken out for a downpayment is tax-free.
Further incentives for homebuyers include more than doubling the time allowed to begin repaying RRSP contributions once a withdrawal is made to pay for the deposit on a home. First-time buyers who take money from their RRSPs between January 1, 2022, and December 31, 2025, now have five years instead of two to start repayments.
Can We Build As Fast As the Population Grows?
The parliamentary budget officer released a report stating Canada needs to build 1.3 million homes by 2030 to restore Canada’s vacancy rate to its historical average. Conversely, the Canada Mortgage and Housing Corporation puts the number at 3.5 million more homes by 2030 to restore affordability to 2003–04 levels.
What are your thoughts on housing affordability and the government’s efforts to improve it?
