Young Canadian buyers are struggling to enter the housing market with such high housing prices and the inability to make up a 20% down payment for the purchase. In an effort to tackle this, as of August 1, 2024, the government increased the amortization period from 25 years to 30 years for first-time home buyers purchasing a new build/pre-construction home only. Essentially, the length of the mortgage or borrowing period would assist the young buyer in financing a home purchase for less i.e. a smaller monthly mortgage payment.
As of September 16, 2024, the Liberal government has announced new developments:
1. The 30-year amortization period will now be available to all first-time home buyers of residential resale homes and new build/pre-constructions homes.
By doing so, first time home buyers will now have access to the resale market and in turn, a larger pool of options for buying a home under this scheme.
2. The 30-year amortization period will now be available to all buyers of new build/pre-construction homes.
By expanding the pool to all buyers of newly builder pre-construction home will inevitably encourage buyers to explore more pre-construction options in the real estate market.
3. Buyers looking to put down less than 20% have always been required to purchase the Canada Mortgage and Housing Corporation (CMHC) loan insurance. This type of insurance is required so that the lender is protected in case you are unable to make payments. It would allow you to get a mortgage for up to 95% of the purchase price of a home.
To obtain mortgage loan insurance, a minimum down payment is required. As per CMHC, the current structure is as follows:
- If the home costs $500,000 or less, you'll need a minimum down payment of 5%.
- If the home costs more than $500,000, you'll need a minimum of 5% down on the first $500,000 and 10% on the remainder.
- If the home costs $1,000,000 or more, mortgage loan insurance is not available.
The change here is that the mortgage default insurance is now increasing on homes up to $1.5 Million in purchase value. The mortgage default insurance cap has not been changed since 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
