Starting August 1, 2024, homebuyers in Canada will have a new mortgage option available for newly built homes. This initiative, introduced by the Canadian Mortgage and Housing Corporation (CMHC), aims to support affordable homeownership by offering insured mortgages with a 30-year amortization period, when it was previously a 25-year amortization period. This change is expected to provide more flexibility and lower monthly payments for eligible buyers, particularly in competitive housing markets.
KEY FEATURES AND QUALIFYING
• Must be a First-Time Homebuyer: At least one borrower must be a first-time homebuyer
• Insured Mortgages Only: Down payments as low as 5% but no more than 19.99%
• New Build Homes: Qualifying property must be a newly built home
• Primary Residence: The home must be intended for homeowner occupancy
WHAT DOES THIS MEAN?
Extending the amortization from 25 to 30 years not only increases the maximum purchase price, but also lowers the monthly payments, making homeownership more affordable. You will pay more interest over time with a longer amortization period, but homeowners have the option to make prepayments against the mortgage to further reduce interest, carrying costs and total life of the mortgage.
For example, a household with an annual income of $110,000 with no debts will increase their purchasing ability by approximately $30,000 with a 30-year amortized mortgage over a 25-year amortized mortgage.
THE CONTROVERSY
As with any rule change, controversy follows. CTV News interviewed two individuals in the real estate world with opposing views on these new mortgage rules, so what's the controversy all about? There's an argument on whether these new rules will make a difference and if this will make new homes more affordable for first-time buyers.
I believe that it can definitely make a difference for first-time homebuyers. Obviously, this is who the program is targeting. The idea of just having extra cash flow in their pockets at the end of each month will definitely help every household in Canada." - Manon Fredette, REALTOR
Honestly, it's not going to move the needle. I think it'll help a few people, but not very many at this point. We're talking about interest rates that are still pretty elevated, and young Canadians that are struggling to come up with a down payment without the bank of mom and dad." - Frank Napolitano of Mortgage Brokers Ottawa
Even Prime Minister, Justin Trudeau, weighed in with a video post on X:
If you have a longer-term mortgage, you can make smaller payments to start. That means you can buy your first home sooner...Now, it might not take you all 30 years to pay off that home as you advance in your career and make more money. You can pay more per month and pay it off sooner. But it’s giving you the option so you can get into that new home sooner.” - Justin Trudeau, Prime Minister
What do Canadians have to say? Many support the rule change because it will make it easier for first-time homebuyers to enter the market, but others expressed concerns about the longer mortgage life actually making the home more expensive based on the extra five years of interest paid.
Pros and cons aside, this is a viable option for first-time buyers to enter the market. If you're wondering if this could be right for you, contact us! We would love to help guide you through the home buying process and discuss which mortgage option is the right path for you and your family.