According to The Globe and Mail, the Canada Mortgage and Housing Corporation (CMHC) recently announced a 20-basis-point premium hike for insured mortgages with a 30-year amortization period. This move comes two months after the Liberal government introduced the new policy aimed at making homeownership more accessible to young Canadians. However, the strict eligibility criteria and premium increase have raised concerns about the policy’s effectiveness in addressing housing affordability.
The Policy’s Intentions
The new policy allows first-time homebuyers to opt for a 30-year amortization period, up from the previous 25-year maximum, but only for newly built homes under $1 million with a down payment less than 20%. This limits the benefits to a select few, mostly condo buyers in Ontario and British Columbia. The policy’s intention is to reduce monthly mortgage payments, making it easier for first-time homebuyers to enter the market.
The Devil is in the Details
However, the longer amortization period also means higher interest payments over the life of the mortgage. Additionally, buyers will need to factor in higher condo fees for new constructions. Mortgage experts argue that the policy falls short in addressing the root causes of housing unaffordability, such as excessive demand and limited supply.
A Missed Opportunity?
Mortgage broker Samantha Power notes, “It isn’t a massive difference, but it’s still an increase. If we’re trying to help first-time homebuyers, why are we gouging them with an insurance premium?” James Laird, chief operating officer of Ratehub.ca, adds, “There are no newly built single-family homes under $1 million in the big cities.” The criteria will firmly exclude anyone except condo buyers in Ontario and British Columbia.
A Silver Lining?
While the policy may not be a game-changer for most first-time homebuyers, it does offer some benefits. Ratehub’s calculations show that homebuyers who fulfill the eligibility criteria will qualify for 6 to 7% more in mortgage loans with the new 30-year amortization. This could result in lower monthly payments, making homeownership more manageable.
Expert Insights
Mortgage experts suggest that indexing the $1 million threshold to inflation and making the 30-year amortization available across the board would be more effective solutions. Ron Butler, a mortgage broker, notes, “The idea that by increasing [the mortgage] to 30 years, you’re adding so much interest, that makes an assumption that no one chooses to make prepayments or reduce the amortization down the line.”
Conclusion
At Cruz Financial Group, we understand the complexities of the mortgage market and the challenges faced by first-time homebuyers. Our team of experienced mortgage professionals is dedicated to helping you navigate the process and find the best mortgage solutions for your needs. Contact us today to learn more about how we can assist you in achieving your homeownership goals.
