Mortgage 101 – Canada’s 30-Year Mortgage

What are the implications of the 30-year mortgage? Clinton and Todd sit down this episode and chat a bit more in-depth about what the 30-year mortgage means for first time homebuyers, noting the need for affordable housing options in the region, especially in urban centers like Halifax. Clinton emphasizes the importance of builders offering spec homes to cater to first-time buyers, advocating for standardized, cost-effective builds to reduce market competition and stress for buyers.

Todd Veinotte
All right welcome back to Mortgage 101 your guide to homeownership with Clinton Wilkins and myself Todd Veinotte and that of course is Billy Idol who is coming to Halifax! Are you excited about that?

Clinton Wilkins
I do not have tickets, but you never know. Maybe someone will give them to me. I’m here I’m available.

Todd Veinotte
Somebody may give them to you?

Clinton Wilkins
I’m a good plus one!

Todd Veinotte
You should actually purchase them and give them away as some type of promotion. What do you think?

Clinton Wilkins
You know what? It’s a great idea. Yeah, maybe we’ll give them away on City News. You love giving stuff away. We’ll see what I can give away on the radio. I’ll be in the next couple of days, we’ll see what we can give away here on the radio. We’ll see.

Todd Veinotte
All right, we’ll figure it out. Okay, so the 30 year mortgage, when it comes to somebody’s payments, how much more does this help? I guess this will get people into a mortgage that they could not have otherwise afforded, correct?

Clinton Wilkins
Yes. Yeah. Marginally. Yes. So an insured mortgage, I think the rates will be the same, regardless of what the amortization is, which is great news! Previously, when we had 30 year, high ratio, insured mortgages, the borrower’s paid a higher premium. Yep. So it’ll be interesting to see what happens with the premiums. There’s still going to be a lot of things worked out with the Canadian Mortgage Housing Corporation, which is the Crown Corp. Seeing what Canada can guarantee in terms of getting these programs going. So we’re very interested to see what happens when all the writing comes out. You know, that I think the one thing that people need to take into consideration is, the longer amortization is great, it has a lower payment, like it might lower someone’s payment, you know, 100, or couple of 100 bucks, maybe here or there. But the cost of borrowing over the term is going to be more because you’re paying it over a longer period of time. But the thing is, new homes typically appreciate more than maybe resale do, especially the first time around. And oftentimes first time homebuyers are younger people. They have 30 years to pay these mortgages. I’m not stressed about it. As part of our professional organization, Mortgage Professional Canada, we’ve been lobbying the federal government in terms of doing 30 year, high ratio insured mortgages for first time homebuyers, for years, since they went away, basically. You know, I wish it would have been a more of broad strokes. I wish it would be for all first time homebuyers. I think it’d be easier.

Todd Veinotte
You’re talking regardless of whether it’s a new build or not?

Clinton Wilkins
New, existing, whatever, I think 30 years is not a problem for first time homebuyers personally! So we’ll see. I think this is a good first step. I’m happy the federal government is doing it. I think it’s, it’s good news for first time homebuyers. You know, I think it’s going to be motivating. I think it’s going to get some people into the market. The one thing we need to remember on high ratio insured mortgages, the maximum purchase price is $999,000. Some of our listeners are probably like, Okay, that’s great! That’ll like take care of everyone who’s buying their first home. But we need to remember in Ontario and BC, not many homes under a million dollars. Not many.

Todd Veinotte
But here in this region. People could generally make it work.

Clinton Wilkins
I give it a thumbs up!

Todd Veinotte
Yeah, yeah. Okay, so I often hear people say, well, obviously, if you extend it out over 30 years, as you already mentioned, you’re going to be paying a lot more in interest payments over that time period. But my goodness gracious, if that doesn’t motivate you to get into it, then feel free to pay rent and get nothing for all that money that you’re gonna throw away in rent. Right?

Clinton Wilkins
I can tell you, most of the people that have any type of net worth, are homeowners. Exactly. Yeah, I’m not saying that renters are poor. Because there’s lots of renters that are very good at saving, investing. I’m just going to give this to you straight. If you don’t own, you need to put away the difference on how much your property would appreciate. And you know what, homeownership is not for everybody. I 100% get that. It is tough to become a homeowner. But, if people can, you know, afford to get into a home, you know, it takes sometimes two incomes to do it. Oftentimes, those properties are appreciating and paying down the mortgage is forcing you to essentially save. And that’s why homeowners typically have a higher net worth than renters do. It’s just reality!

Todd Veinotte
Do you feel as though the 30 year mortgage could be expanded to other? So if you bought once already and sold, are you then considered a new first time homebuyer again? You’re not eh?

Clinton Wilkins
No, and this is what is going to be interesting because right now the writing on the homebuyers plan, it says basically you have to not have owned a home in like six years. So it’ll be interesting to see if those rules align with the homebuyers plan rules. Because in the homebuyers plan, it also allows someone who goes through a separation or a divorce, matrimonial breakdown, to become a homebuyer again. As long as they’ve repaid any of those RRSP funds if they’ve used a program previously. So it will be interesting to see if what’s considered a first time homebuyer is the same, because obviously, different programs have different regulations. So it’ll be interesting to see what happens in the fine print. But it’s exciting to me. The one thing that came up, I did an interview with Rob Snow the other day on City News, it was on on the national one; the one thing that came up was that a lot of these new homes that are being built are out in the suburbs. So let’s say you grew up in central Halifax, if you want to stay in your community, maybe you want to raise your family or have your spouse live in the community that you grew up in; you’re probably buying a resale home, probably. To buy these new construction properties, oftentimes, unless they’re a condo, they are likely outside of the core of the city. So that’s one consideration to take into account. I understand why the Federal Government did it. But I think the biggest motivator on this 30 year amortization is for the builders, because the builders want to build more homes and really need to build more homes to keep up with demand and to meet the expectations of what the federal government has said, or set in terms of the amount of homes we need. But, the 30 years is going to enable more of those first time homebuyers to get into these new construction homes. And I hope that these are going to be at a lower cost than maybe a resale home will be. Let’s build small townhouses, row houses that are going to be at a more affordable price. I’d love to see a price point in the $ 300, 000-400,000 mark, that’s below the average in Halifax, that’s going to be a lot more affordable. And a lot of people with one or two incomes are going to be able to afford that.

Todd Veinotte
Okay, do you anticipate builders might be building the spec house again? Because that’s something that they’ve gotten away from right?

Clinton Wilkins
I think it’s gonna happen. I want them to be very, very generic. I want them to be the same. I want to build them quickly quality, and it’s a lot easier to do batch tasks, right? Let’s build 100 of them at the at a time! Do you know what I mean? That will reduce the cost, that will increase the quality, and it will speed up the days to market which will get people in homes.

Todd Veinotte
And less stressful for the buyer as well. Because you’re not sitting around waiting for deadlines. The house is built. You can go in and buy a new house, built.

Clinton Wilkins
Exactly. You’re ready to roll. I am totally for spec builds. I feel like that’s what we need right now. You know these custom homes? There’s certainly a market for that. But I feel like the custom homes are now going to be for that for the elite crowd. You know what I mean? I don’t think first time homebuyers are buying or building a custom home and if they are, they’ve missed a few rungs on that real estate ladder. Yeah, we’ve talked about this before on our on our show, you know. I think pre pandemic a lot of first time homebuyers were buying homes in West Bedford, brand new construction with granite countertops and their stainless steel appliances. You know these homes, you know whatthese homes are? You know, I love it out there too! But, first time homebuyers need to be buying that bungalow split entry, you know, semi detached home that Nana and Pop lived in, and sold it, and it needs some work. That’s what a first time homebuyer really needs to buy. And I hope the price point that the builders will start building new homes, will be very similar to what that price point would be to get first time homebuyers into that market price.

Todd Veinotte
Which would be what? What’s the price point you’re referencing? What are you thinking?

Clinton Wilkins
I am thinking like the sub $400,000! Yeah, like $300,000-$400,000 would be a great price point for first time homeowners to be. Right now the average price point in Halifax is over $500,000. So if we can bring that down into a more reasonable price, just think; borrowers can qualify right now from anywhere from like 4, to 4 1/2 times their annual income. So let’s say the annual income is for a household, let’s say even $100,000. Let’s say there’s two people making $50,000 each and they’re making $100,000. They should qualify for $400,000 – $450,000. So I think if the builders are building in that price point, you know, two buyers are buying together, they’re going to be able to get into the real estate market. And I think new home construction, sometimes there’s less competition as well. Because there’s some lead time typically. But I love the idea of the spec homes. I remember when I was first getting in the industry like 19 years ago, there was so much construction even like out in Eastern Passage and all these homes were the same. You used to be able to buy homes back then for like $100,000.

Todd Veinotte
Okay we’ve got lots to talk about including the market you referenced the market so with that, and much more Mortgage 101 your guide to homeownership, we’ll be right back!