City News Update April 11 – Return of the 30 Year Mortgage for First Time Homebuyers

Clinton Wilkins joins the ‘Now You Know’ Show with Rob Snow, on City News to chat about a returned opportunity for first-time homebuyers! The Bank of Canada recently announced the return of the 30-year mortgage for new home buyers on new builds. Clinton thinks this is also an opportunity to motivate contractors and developers to get new construction going in the province. The two discuss what that means for amortization, and passing the stress test. Lastly, Clinton holds firm to his optimism about cooling interest rates.

The answers you need to know from the people in the know. This is Now You Know with Rob Snow on City News.

Rob Snow
The federal budget roadshow continued today with news about mortgages. We were expecting something about mortgage rules in the upcoming budget. And it came today, the return of the 30 year mortgage for first time homebuyers. Clinton Wilkins is with the Clinton Wilkins Mortgage Team, Centum Home Lenders in Dartmouth Nova Scotia. Thanks for joining us again, Clinton.

Clinton Wilkins
Thanks for having me. Rob.

Rob Snow
What’s your reaction to the announcement today from the Minister of Finance, Chrystia Freeland?

Clinton Wilkins
You know, I think it’s great news for first time homebuyers specifically for some homebuyers that are planning on buying new construction properties. Typically, those are more expensive than resale homes here across the country. You know, I think the the announcement was, great for first time homebuyers. Will it be inflationary? I don’t think so. You know, I think the one thing that we need to remember is we certainly do have a lack of housing and there’s not enough new home starts here across the country. But, it may certainly motivate contractors and developers to get many more new home starts going. I know we certainly need them in many areas across the country.

Rob Snow
What do you think about that? It only applies to newly built homes, not all existing homes, just newly built homes. What do you think about that aspect of the announcement?

Clinton Wilkins
You know, I think they took some of the wording potentially from the first time homebuyers incentive that was cancelled earlier this year. That program also had a greater incentive for new construction or newly built homes as well. You know, I think that there is, some knowledge out there that new construction properties sometimes appreciate a little bit more than potentially resale property do typically, you know, the first owners of these new constructions are benefiting the most from this price growth. And that being said, these new construction properties are more expensive, and typically would go a longer period without needing maybe a, major renovation. So, you know, in terms of new construction, I’m not super concerned about it, I think that that will potentially push more for some homebuyers, into that vertical. It will also help those first time homebuyers qualify, obviously, with a longer amortization, it means having a lower payment, and we’d be qualifying them even with a stress test on a lower payment.

Rob Snow
Right! You know the finance minister said that part of the plan here is to help spur more construction of homes, and boost demand for newly built homes. I guess that’s part of the goal here, with this Clinton.

Clinton Wilkins
So yeah, I would agree. And, you know, I think that we need new construction on all types of new homes. I think sometimes when we think about new home construction, we think about a dream home being built. But this would also include, townhomes, condos, and anything that might be a better type of real estate for first time homebuyers. You know, I always say in my office prior to 2020 when a lot of real estate values were increasing across our country; first time homebuyers had an unrealistic expectation of what their first home would be. I think many of them would come in and want to buy that brand new construction property, the four bedroom home with granite countertops and stainless steel appliances. I think the expectation has been reset for a lot of first time homebuyers, especially over the last couple of years. They’re certainly buying a lot of resale property, and they’ll still need to qualify on that 25 year amortization. But the ones that can now qualify on 30 years, I think it will enable them to buy some of these new constructions. But, maybe it’s a more modest new home, you know, I don’t think that they’re necessarily going to be buying these dream homes still at this point. We also need to remember that insured mortgages still have a maximum cap of under a million dollars. So when we’re thinking about new home construction, it still needs to be under that, $999,000 price point to be able to qualify for a high ratio insured mortgage.

Rob Snow
Okay! Chrystia Freeland also said today that the government is going to change mortgage rules to allow people who are struggling to pay their monthly home debts to permanently extend their repayment term to 35 years. I’m wondering how that would work.

Clinton Wilkins
Yeah, I think that this is going to be happening really at the financial institution level. I think that there’s going to be due diligence put in place at these financial institutions built to re-qualify or find out that reason for hardship, in order to rework those mortgages internally. We will not be originating new mortgages at 35 years, that’s not something that we’re going to be doing in our channel. But it’s something that the lenders will be able to do, internally, to try to keep people in their homes. I think part of the concern was when the interest rates were increasing, specifically for the Bank of Canada, these borrowers that were qualifying at a rate of 5.25, were then suddenly renewing at interest rates much higher. Specifically those with variable rate mortgages, the terms kept on increasing. There are some of the lenders, some of the big banks, that the mortgages will allow a negative amortization. So what that means is that, as the interest rates were increasing, borrowers balances were increasing as well. So the amount of payment that they were making on a monthly basis wasn’t enough to even cover just the interest.

Rob Snow
Okay, one more thing, just in the amount of time that we have, I must ask you what is happening with mortgage rates? Because rates on the bond market have been tracking higher recently, what does that mean for mortgage rates?

Clinton Wilkins
I think all lenders are getting squeezed in terms of the amount of margin. You know, I think, by and large Canadians think that the banks are just making bags of money on mortgages, it is certainly not the case. We’re certainly seeing some uptick in the rates. Everyone’s optimistic that the rates are going to soften. The Bank of Canada met yesterday and did a hold on the rate. And they’re going to be meeting again in June. And everyone’s kind of waiting with bated breath hoping that we’re going to see some rate reduction in the key overnight rate. I think the thing that we need to remember is that the fixed rates and variable rates move completely independently of each other. And these fixed rates are really tied to what’s going on in the bond market. So I will say if you’re buying a new property or you have a mortgage coming up for renewal, I am not expecting lower rates here at least for the next couple of months, just based on what’s going on with the bond market. But we’re watching that closely as well!

Rob Snow
Okay, thank you very much for your time today. Clinton Wilkins, great to hear from you!

Clinton Wilkins
Thanks for having me Rob! Have a great day.

Rob Snow
With the Clinton Wilkins Mortgage Team Centum Home lenders in Dartmouth, Nova Scotia. I’m Rob Snow. This is Now You Know, City News.