Federal government extends 30-year amortizations to more buyers and raises mortgage insurance cap
What are the changes?
Why were the changes made?
What will they mean for homebuyers?
In addition, the new cap on the value of homes that qualify for insurance means anyone buying a home that costs between $1 million and $1.5 million will no longer need a 20 per cent downpayment. They will now qualify for an insured mortgage, which typically requires a downpayment of only five per cent. Graham said the amortization measure first introduced in August for newly-built homes was criticized as too restrictive because many were priced above the threshold for an insured mortgage. “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,” she said.
What will the impact be on monthly payments?
A buyer financing a home at the average Canadian price of $649,096 over 30 years at 4.09 per cent interest would have monthly payments of $2,895 instead of $3,198 with a 25-year mortgage, according to rates.ca. Over five years, they would pay $18,172 less with the 30-year amortization. Their balance owing on the end of five years (when they would need to renew) would be $545, 249 — $20,107 more than if they had amortized over 25 years.
Is there a downside?
Homebuyers will be carrying mortgage payments longer. For instance, a 37-year-old who amortizes a mortgage over 30 years will still be paying it down past the traditional retirement age. Moreover, homebuyers may be tempted to spend more than they can afford because the monthly payments will be cheaper than they were under the old rules. Mortgagees will also pay interest for longer, though that tends to make up a smaller proportion of monthly payments in the later years of a mortgage. The changes could also lead to an uptick in home prices by stimulating demand, exacerbating the supply issues that the measures are trying to alleviate, said Robert Colangelo, a vice president in the Financial Institutions Group at Moody’s Canada Inc. This would be ill-timed with unemployment — a key indicator of mortgage defaults — creeping higher than expected, he said.
What do the changes mean for lenders and the CMHC?
What will this do for the real estate market?
What about the condo market?
What will this mean for real estate investors?
Unlike ultra-low interest rates, the new mortgage amortization and insurance rules aren’t expected to spur investment activity in residential real estate, said Colangelo. Investor mortgages represent, on average, about nine or 10 per cent of the total residential mortgage portfolios of the large Canadian banks, “so I would not anticipate these measures to drastically change this proportion over the medium-term,” he said. Speculators will be kept to a subset of homebuyers because they can only take advantage of the amortization rules that apply to new builds, and there may yet be caveats that prohibit the rules from applying to buyers with more than one property, said Yolevski. “These are positive (steps) because they do not, by and large, help drive speculation,” she said. “You might see some speculation in new construction… But you’re talking about a small segment of the market that may be able to take advantage.”