Some Canadians don’t think a longer amount of time to pay off their mortgage will make it more affordable to buy a new home.
On Thursday, Deputy Prime Minister Chrystia Freeland announced that first-time homebuyers purchasing new homes can receive 30-year amortization periods on insured mortgages, starting on Aug. 1.
Amortization refers to the length of time it takes to pay off the entire mortgage loan, which is estimated based on the interest rate, according to the Financial Consumer Agency of Canada (FCAC).
Currently, if a down payment is less than 20 per cent of the home price, the longest allowable amortization is 25 years.
“By extending amortization, monthly mortgage payments will be more affordable for young Canadians who want that first home of their own,” Freeland said in a news release.
The government said the change reflects the reality that the size of a down payment and the amount of time needed to save up for one are much larger than they used to be.
However, people pay more interest the longer it takes to pay off their mortgage, even if monthly payments decrease, FCAC notes.
Freeland also announced first-time homebuyers can withdraw almost double from their RRSPs starting Apr. 16.
Some Canadians are skeptical if the changes will lead to long-term housing affordability.
“My eldest son, an economist, tells me, “affordable” housing is not about making houses less expensive; it’s about making expensive homes more #affordable via financial shenanigans,” one person responded on X.
“I guess this is not to be confused with a 30-year mortgage, sadly. Renewing every so often is where they can get you with high interest rates,” a Reddit user said.
“My first condo in 2007 had a 35 year mortgage. Those extra 10 years of interest basically doubled the amount of interest I was paying for the whole thing if I had not sold it. $465,000 condo and over $400,000 in interest (1.75% variable interest rate, more or less, the 4 years I owned it),” another person mentioned.
Others approve of the flexibility to pay less in the short term, given an unstable job market right now.
“Did a 30 year myself (not a new build obviously). Yeah it’s not great, but the lower monthly payments allow me more wiggle room in case of layoffs. My company has already done 2….The thing is I pay off an extra 5k a year. I’m not intending to take the full 30. It’s more for the ability to not spend that extra money if things go south,” another user commented.
And others hope the government extends the increased amortization period to more than newly built homes.
“We just purchased our first home and new builds were totally out of our price range – the only houses we could even remotely afford (stretching our budget tight) were built in the 1980/90s. Seems odd that we couldn’t benefit from the same 30-year amortization,” one person commented on Reddit.
Freeland’s announcement on changes to the Home Buyers’ Plan is part of the government’s 2024 Budget, which will be tabled on Apr. 16.
