How does the new 30-year amortization extension impact you?

A few months back, the federal government announced a variety of changes aimed to help first-time home buyers enter the housing market. These changes involved how buyers can use the Home Buyers’ Plan and Registered Retirement Savings Plan to build up their savings further. You can check out more information about those updates here. As of August 1, the most recent change has officially come into effect, and it’s all about amortization periods. Here’s what you need to know!

What are the new amortization rules?

First-time home buyers can now stretch their mortgage amortization period to 30 years, up from the previous 25 years. This change is designed to help those who struggle with the monthly costs of a mortgage by lowering the size of those payments.

To qualify for a 30-year mortgage, at least one of the borrowers must meet the Canadian government’s definition of a first-time home buyer, which includes never having bought a home before, not living in a home they or their spouse owned in the last four years, or having recently had a marriage or common-law relationship end. The home must also be newly built and not have been previously occupied. The 30-year amortization applies only to insured mortgages, which means the buyer must contribute less than a 20 per cent down payment, and the property must cost less than $1 million.

Who benefits from the new rules?

The new rules offer significant benefits for some first-time buyers by potentially increasing their borrowing power. However, the criteria to qualify might limit the number of Canadians who can take advantage of this program. In expensive markets where many properties exceed the $1 million mark, fewer buyers will benefit from these changes. Plus, new home construction projects often require a deposit of at least 20 per cent. This disqualifies new home construction buyers from securing insured mortgages.

Is a 30-year mortgage more affordable?

Some critics argue that extending the amortization period may not significantly improve affordability. While monthly payments might be lower, the overall interest paid over the loan’s lifetime will be higher, meaning Canadians could end up paying more in the long run. For example, a first-time buyer with a five per cent down payment on their home might see their monthly payments drop if they opt for a 30-year amortization instead of 25 years. However, this relatively small monthly saving may not justify the higher long-term interest costs of taking this route.

How a mortgage broker can help

Navigating these new rules and understanding their implications can be complex. That’s where we come in! Our role is to help you find the best mortgage product to suit your needs and financial situation. We can guide you through the qualifications for a 30-year mortgage, explore alternative financing options, and provide expert advice on managing long-term costs. Whether you are a first-time home buyer or looking to understand the latest changes in the mortgage landscape, we are here to help you make informed decisions and achieve your homeownership goals.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.