The Liberal government on Monday announced proposed changes to Canada’s mortgage market, extending the availability of 30-year amortizations and raising the limit on insured mortgage products.
First-time homebuyers, as well as those purchasing new construction, will soon be able to take out mortgages secured with a 30-year amortization, compared with the typical 25-year payback period.
In addition, the Liberals are raising the price limit for taking out insured mortgages to $1.5 million, up from the previous limit of $1 million.
Both proposed changes would take effect on December 15.
Deputy Prime Minister and Finance Minister Chrystia Freeland made the announcements Monday in Ottawa, where members of Parliament are reconvening for the start of the fall session of the House of Commons.
She presented the measure as a way to help Canadians afford to buy their first home.
“This will enable more young Canadians to realize their dream of owning their own home,” he told reporters.
Spreading out amortizations helps reduce the monthly burden of carrying a mortgage, although the homeowner will likely pay more in interest over the life of the loan.
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Because households have to put down more than 20 per cent up front when purchasing a home with an uninsured mortgage, the current price cap on insured mortgages creates a significant barrier for Canadians looking to purchase a property worth more than $1 million.
In some of Canada’s most expensive housing markets, the average home price is already above that level, making it difficult for some prospective buyers to save enough to one day be able to buy a home.
Under the proposed changes, a person would be able to put down between five and twenty percent of the value of a home worth up to $1.5 million, which would reduce the amount of the down payment required.
The proposals come after the Liberals instituted new changes effective August 1 to allow 30-year amortizations for first-time homebuyers taking out insured mortgages for new construction.
Freeland was asked Monday about concerns that adding more buyers to the housing pool would drive up home prices and end up further eroding affordability.
She defended the measures, saying they give younger Canadians an “advantage,” giving them an edge over established homeowners in the market.
“With these measures, first-time homebuyers will be in a stronger position. We believe this is the right thing to do,” he said.
Freeland also said part of the motivation for focusing proposals on new construction is to help incentivize builders to put more hands on the job and fill Canada’s well-known housing supply gap.
“We want people to build more homes faster in Canada. And for them to do that, it’s critical that there are buyers for those homes,” he said.
“These are big changes, a very significant step in terms of mortgages and repayments… It is important to be thoughtful and careful in this area, and we are and have been.”
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