The federal government has announced mortgage changes that will make it easier for first-time home buyers to enter the real estate market and buy a home.
Proposed changes floated by the Liberal government would see price caps removed and amortizations extended on insured mortgages, and will only affect first-time buyers, those buying a newly constructed home or anyone taking out an insured mortgage. According to Finance Minister Chrystia Freeland, the changes are intended to help renters break into the ownership market.
“It is going to put the dream of home ownership in reach for more young Canadians,” Freeland told reporters at a press conference on Monday.
Easing the Path to Homeownership
If enacted, the changes would allow first-time homebuyers and those purchasing new builds to take an insured mortgage with a 30-year amortization, up from the typical 25-year payback period. The price cap for taking out an insured mortgage will also be raised from $1 million to $1.5 million.
The longer amortization would likely result in a lower monthly payment for borrowers, but also result in significantly higher interest costs. With a 30-year amortization, a $1 million mortgage at 4.99% interest would result in a monthly payment of $5,330.94, compared to $5,810.36 monthly with a 25-year amortization. However, interest costs for the 30-year amortization would be $919,138.40, more than $175,000 higher than a mortgage with a 25-year amortization.
Financial Implications of Longer Amortizations
While the federal government touted the changes as necessary to address Canada’s housing affordability crisis, some are predicting the move could heat up the real estate market, driving prices up further.
Homebuilding groups have pushed for longer amortization periods to boost construction, arguing that increased demand would encourage developers to build more homes.
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