Canada allows 30-year amortization for first-time buyers' mortgages on new homes

TORONTO – Some advocates applaud Ottawa's move to extend the amortization period on insured mortgages for certain homebuyers, but say extending the policy to all Canadians would help make home ownership more affordable.

In a speech in Toronto on Thursday, Finance Minister Chrystia Freeland announced that the federal government will allow a 30-year amortization period on insured mortgages for first-time home buyers.

The change will take effect from August 1.

Under current rules, if the down payment is less than 20 percent of the home's price, the longest allowable amortization is the homeowner's mortgage repayment period of 25 years.

“Faced with a dearth of housing options and rising rents and home prices, young Canadians feel like the deck is stacked against them,” Freeland said in a news release.

“By extending amortization, monthly mortgage payments will be more affordable for young Canadians looking to own their first home.”

Lauren van den Berg, CEO of Canada Mortgage Professionals, called it a “step in the right direction” and said extending the amortization period “will help level the playing field for first-time home buyers.”

“We know that this will lead to greater opportunities for home ownership and ultimately contribute to economic recovery and economic recovery,” he said in an interview.

“But more needs to be done to make the dream of home ownership a reality for all Canadians.”

Van den Bergh said the government should extend the option to all Canadians buying a home, whether it's a new or existing home.

“There are many areas, especially in the Greater Vancouver area and the Greater Toronto Area, where you have no choice but to build, so the opportunity for new construction is not the same across the country.”

Ratesdotca mortgage and real estate specialist Victor Tran also expressed concern about how effective the change would be based on eligibility criteria.

“While it is now possible to obtain an insured mortgage with new construction, it is rare,” he said in a statement.

Tran also noted that many properties in Vancouver and Toronto are priced above $1 million, which usually means buyers must get an uninsured mortgage.

Canadian Home Builders Association CEO Kevin Lee said the announcement will be a “game changer.” The group also supported longer amortization periods, saying another five years would help increase affordability and encourage construction.

“This measure will also enable our sector to meet the government's target of 5.8 million new homes over the next decade,” he said in a statement.

“This measure is needed to help turn the market around and will be needed for many years if we are to work towards doubling housing starts.”

He said there should also be relief in the rental market, as the move will allow some Canadians to stop renting and become homeowners.

As part of the announcement, Freeland also said the government would increase the amount first-time home buyers can withdraw from their RRSPs to buy a home, from $35,000 to $60,000. This will take effect on April 16, the day the federal budget is released.

The government said the change reflects the fact that the size of the down payment and the time it takes to save is much longer than before.

People who transferred or received money between January 1, 2022 and December 31, 2025, will also have more time to start repaying — up to a total of five years instead of two.

Ottawa said the changes are designed to work alongside the First Home Savings Account, which launched last year. The rules governing this program allow prospective homebuyers to start saving up to 15 years after opening the account, with an annual deposit limit of $8,000 and a lifetime contribution limit of $40,000.

Freeland said more than 750,000 Canadians have opened an FHSA to date. Although the program went online on April 1 of last year, most Canadian financial institutions only started offering the account last summer or fall.

Ottawa also announced changes to Canada's mortgage statute, which includes an expectation that financial institutions will offer permanent amortization benefits to protect homeowners who meet certain requirements.

This allows eligible homeowners to reduce their monthly mortgage payment to a number they can afford for as long as they need to.

This Canadian Press report was first published on April 11, 2024.