Ottawa’s 30-Year Amortization Extension: A Step Towards Affordable Homeownership for Canadians

In a move aimed at improving housing affordability, Ottawa recently announced an extension of the amortization period for insured mortgages to 30 years for first-time homebuyers purchasing newly built homes. This change, set to take effect on August 1, 2024, was welcomed by housing advocates and mortgage professionals alike.

Under current regulations, insured mortgages with down payments below 20% are limited to a maximum amortization period of 25 years. Extending this to 30 years allows homebuyers to spread out their mortgage payments over a longer time frame, reducing their monthly burden. Finance Minister Chrystia Freeland highlighted that this change is meant to ease the financial pressure younger Canadians face as they navigate a housing market marked by rising home prices and limited inventory.

Lauren van den Berg, CEO of Mortgage Professionals Canada, called the move “a step in the right direction,” emphasizing how it could help level the playing field for first-time buyers. However, she argued that the policy should be expanded beyond newly built homes to all Canadians, pointing out that in high-density areas like Greater Toronto and Vancouver, opportunities for new construction are limited.

Victor Tran, a mortgage specialist at Ratesdotca, raised concerns about the effectiveness of the policy, especially in markets where home prices frequently exceed $1 million. These homes typically require uninsured mortgages, leaving many buyers unable to benefit from the extended amortization. Despite these concerns, Canadian Home Builders’ Association CEO Kevin Lee hailed the change as a potential “game changer,” noting that it could help the government meet its ambitious target of building 5.8 million new homes in the next decade.

In addition to the amortization extension, Ottawa is also raising the amount first-time buyers can withdraw from their RRSPs, increasing the limit to $60,000 from $35,000. This increase, effective from April 16, 2024, aims to help buyers manage the growing costs of down payments in today’s housing market.

These measures, alongside other initiatives like the First Home Savings Account (FHSA), signal a broader push to improve housing affordability across the country. The FHSA, introduced last year, allows Canadians to save up to $40,000 tax-free for a home purchase, with 750,000 accounts already opened.

While the amortization extension and RRSP withdrawal limit increases are seen as positive steps, experts continue to call for more comprehensive policies to address the housing crisis. As Freeland emphasized, these changes aim to provide relief for young Canadians looking to enter the housing market, but more expansive measures are needed to ensure homeownership becomes a reality for all.

Ultimately, while these new policies may provide much-needed relief for first-time buyers, their success will depend on broader market conditions and the government’s ability to address housing supply shortages across the country.

Published by : Gurmaan Mortgages

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