In an effort to light a fire under sluggish home sales, the federal government is extending 30-year mortgage opportunities and raising the cap on insured mortgages to $1.5 million, a move designed to particularly stoke the Greater Toronto and Greater Vancouver Areas. Both come into effect on December 15. On Monday, Liberal Finance Minister announced the 30-year mortgage option will be available to all first-time home buyers or those purchasing a new home. Currently the 30-year amortization is available only to first-time buyers who are purchasing a newly-built home. The insurance cap is currently $1 million and addresses a longstanding mortgage industry grievance that this is freezing some buyers out of being able to purchase a home, says Canadian Mortgage Professional (CMP). The new measure means insurance, which is required for home purchases with a downpayment of less than 20%, will be available to Canadians buying a property for up to $1.5 million. The government’s hope is the moves will “put the dream of homeownership in reach for more young Canadians,” said Freeland, adding first-time buyers would be “in a stronger position” after the adjustments and suggesting it might result in an uptick in homebuilding. “When the government first announced 30-year amortizations would be made available to first-time home buyers purchasing new construction in the federal budget, an early criticism was that the measure was too restrictive, given many newly-built homes were priced above the threshold for an insured mortgage,” says Penelope Graham, a mortgage expert at Ratehub.ca. “Expanding this measure to all housing types, as well as allowing up to $1.5 million for insured mortgages, will greatly improve first-time home buyers’ access to the housing market, and for housing types beyond the traditional starter-home condo, as buyers can now buy more expensive home types with smaller down payments.” Graham says the mortgage industry has been lobbying for extended amortizations for all first-time home buyers as a way to improve affordability for this buyer group. “The ability to spread payments over a longer time period will help with borrowers' qualification ratios, which in turn will help them pass the mortgage stress test, particularly in markets where home prices remain above the million-dollar threshold,” she says. “While it’s unclear how these new policies will impact the many Canadian borrowers who are coming up for their mortgage renewal, they will help greatly ease the financial burden for buyers breaking into the market for the first time. Combined with anticipated interest rate cuts in the coming months, these measures could ease Canadian housing affordability to levels not seen in many years.” Graham hails the moves as the most accommodating mortgage policy changes seen since 2008, when high-ratio mortgages were briefly allowed to be amortized up to 40 years. “Since then, borrowing criteria has been steadily strengthened, in order to protect the integrity of Canada’s banking system, and prevent overheating in the housing market,” she says. “However, given how stagnant home sales have been in recent months following the Bank of Canada’s hiking cycle, it’s clear today’s borrowers need a bigger boost in order to enter the housing market.”
