Government of Canada Introduces 30 Amortization for First-Time Buyers Purchasing New Builds

Home Buying

Apr 15

A HUGE housing announcement came from the Government of Canada last week

30-year amortization will be allowed for first-time buyers' mortgages on new home builds & $60k from RRSPs!

The government of Canada announced that it will allow 30-year amortization periods on insured mortgages (mortgages with less than 20% down) for first-time homebuyers purchasing newly built homes. Previously, the maximum allowed amortization for an insured mortgage was 25 years.

The change will come into effect on August 1, 2024

How does the 30 amortization rule change impacts borrowers?

It might change a buyer’s purchasing power! First-time buyers who put down 5% with a 30 year mortgage could now potentially qualify for over 5% more home. Or, the required income to qualify for an insured mortgage could potentially be reduced by 5%. Since 2012, this advantage has been limited to borrowers taking conventional mortgages (20% down or more) because they were able to stretch payments out over 30 years.

*all estimates and examples are based on 4.99% and no other debts

**Let’s look at an example:**

Buyers with a gross household income of $100k who are purchasing a resale home will be able to purchase a home at a max price of about $425,000 and will have a monthly payment of 2,345.93
Buyers with a gross household income of $100k who are purchasing a NEW BUILD home will be able to purchase a home at a max price of about $450,000 and will have a monthly payment of 2,285.64
**Net impact:** New Build vs. Resale - you can potentially purchase about $25k more house but have a payment that is $50 less each month.

Will the new 30-year amortization influence real estate values?

It’s unclear exactly how much impact this change will have on real estate values. Overall, its expected that the change will improve market sentiment, although its also important to note that only around 15% of mortgage originations are insured.

Why did the Government Introduce the 30 Year Amortization for First-Time Buyers Purchasing New Builds?

This measure was likely designed to incentive home builders to ramp up their new construction and as an attempt to get first-time buyers out of the rental market. Canadian Home Builders' Association CEO Kevin Lee was quoted saying, “What incents builders to build is an actual buyer," and "Building on spec is more risky today. The main reason builders don't build is because people can’t afford to buy a home because of high rates."

Changes to the RRSP Home Buyers' Plan (HBP)

In addition to the amortization changes, the government also announced they are raising the amount first-time homebuyers can withdraw from their RRSPs -- to $60,000 from $35,000 -- to buy a home.

That change will take effect on April 16, 2024.

Changes to Renewals

The last change that was noted was to renewal communication. Lenders will now have to contact borrowers "up to 24 months in advance of a homeowner's mortgage renewal" to discuss mortgage options. It’s still in borrower’s best interests to reach out to a mortgage professional when this happens to explore ALL the options available to them so that they are able to make the best decision for their situation.