Ottawa plans to raise the price cap and extend amortization on insured mortgages

If you’re considering buying your first home in Canada, there’s some notable news that could make your journey a little smoother. This December, the government plans to expand the amortization period for insured mortgages to all first-time buyers and purchasers of new builds from 25 years to up to 30 years, as well as raise the cap from $1 million to $1.5 million.

What does this mean for Canadians?

With the new 30-year amortization period, you’ll have more time to repay your mortgage, leading to lower monthly payments and ultimately easing your short-term financial burden. This will allow potential homeowners to have more monthly capital available for life’s continued increasing expenses. However, while this is a step toward affordability, extended amortization could also lead to increased demand in housing, potentially driving prices higher over the long term. Further, extending amortization also means a lot more interest paid over the lifetime of a home. So, if a buyer is expecting to live in that home for the full 30 years, they could expect to spend upwards of 20 per cent more in interest.

What’s the impact on increasing the cap on insured mortgage?

By raising the cap on insured mortgages to $1.5 million, the government is opening up more options for first-time buyers – particularly in competitive markets such as Toronto, Calgary and Vancouver. Such a change allows you to consider properties that may have previously felt out of reach if your down payment is less than 20 per cent.

For context, before this change, a $1.5-million home would need at least a $300,000 down payment. With this new update, a down payment as low as $125,000 would be required. Many first-time homebuyers have screamed from the rooftops that the main thing that separates them from buying a home is their down payment – so this update will serve them well. However, it is another change that should see the price of homes increase.

Why does this matter?

It increases overall affordability

The combination of lower monthly payments and access to higher-priced homes can make homeownership more attainable, especially for first-time buyers. With that in mind, this could also stimulate demand and accelerate price growth, which could counteract some of the benefits of affordability.

You have more to choose from

With affordability increased, Canadians have a wider range of housing options to choose from than they did previously. You can now focus on finding a home that fits your needs rather than feeling pressured to settle for less.

More financial breathing room

Lower payments on your mortgage can provide some relief as you settle into your new home, helping you manage your finances as a whole. In the same vein, it’s important to be aware of potential market fluctuations and how any volatility might impact your budget.

The 30-year amortization of new builds

The introduction of a 30-year amortization option for new builds is particularly interesting for first-time buyers. It not only provides a financial pathway to homeownership but also serves as a potential stimulus for the new home market. However, the most effective way to achieve affordability is through a concerted effort to build more homes efficiently, rather than relying solely on policy adjustments that may lead to inflated prices.

To truly make a difference, it’s important to focus on policies that facilitate the construction of new homes. Reducing government red tape, taxes and restrictions is crucial for increasing the housing supply effectively and sustainably.

What to consider moving forward

As you consider your home-buying journey, it’s a great time to reassess your budget with these new policy changes in mind. Seek pre-approval from a mortgage broker to understand what you can afford under the new rules, and consult with a knowledgeable real estate professional who can help you navigate neighborhoods and property types that now fit your budget.