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First-time homebuyers purchasing newly-constructed homes in Canada will soon be able to take out mortgages with payments spread out over 30 years — an option some Realtors would like to see available to all homebuyers and all types of homes.
The changes to the Canadian Mortgage Charter set to take effect Aug. 1 are part of ambitious plans announced Friday by Canadian Prime Minister Justin Trudeau to address housing affordability issues.
The goal of “Canada’s Housing Plan” is to build 3.87 million new homes by 2031 — 2 million more than currently forecast — in part by partnering with homebuilders and housing providers to build homes and apartments on public lands and under-utilized properties across the country.
“Young Canadians are renting more than ever and being priced out of their communities,” the Prime Minister’s office said in a statement. “Families are finding it difficult to get a good place to settle down. The cost to build homes is too high, and the time it takes to finish projects is too long. We need to build more homes in Canada, and we need to build them by the millions.”
The plan also seeks to make it easier to own or rent a home by promoting tenants’ rights, encouraging the use of rental payment history to improve credit scores, and raising the withdrawal limit from tax-exempt retirement accounts to make a downpayment on a first home from $35,000 to $60,000, effective April 16th.
In addition to tapping their Registered Retirement Savings Plan (RRSP) for a down payment through a federal program called the Home Buyers’ Plan, Canadians can also sock away up to $40,000 in a new Tax-Free First Home Savings Account created last year.
More than 750,000 Canadians have already opened a Tax-Free First Home Savings Account, Minister of Finance Chrystia Freeland said.
Chrystia Freeland
“This account is making a real difference for Canadians and it’s clear that younger Canadians want to buy a first home of their own,” Freeland said, in a statement. “They are saving their hard-earned dollars to turn that dream into a reality.”
Freeland said allowing first-time homebuyers to take out mortgages with 30-year amortization schedules will help lower their monthly payments. The policy will only apply to newly-constructed homes, condos and townhouses, however — not existing homes.
While Canadian Realtor groups enthusiastically welcomed the overall housing plan, Ontario Real Estate Association CEO Tim Hudak said the group believes all Canadians should have the option to buy a home on a 30-year amortization schedule.
Tim Hudak
“As families look for a great place to lay down their roots, their budget shouldn’t be contingent on whether they’re purchasing a newly built or pre-owned home,” Hudak said, in a statement. “In the middle of a housing affordability crisis, many Ontario families, not just first-time homebuyers, would benefit from the relief of 30-year amortizations on their mortgages.”
While most U.S. homebuyers choose a 30-year fixed-rate mortgage, home loans work differently in Canada. Monthly payments are usually based on a 25-year amortization schedule, and most mortgages have a term of five years or less. That means borrowers have to renew their mortgage several times before they own their house.
“We know that some homeowners are concerned about their mortgage payments and about renewing their mortgages at a higher rate,” Freeland said.
To help address those concerns, the Canadian Mortgage Charter is also being amended to require lenders to contact borrowers up to 24 months in advance of their mortgage renewal, and new measures will provide “permanent amortization relief to all homeowners” without fees or penalties.
For example, a homeowner on a 25-year amortization schedule who was previously provided with a temporary hardship extension to 35 years to lower their monthly payments may in some circumstances be granted a permanent extension, she said.
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