30-Year Amortization Mortgages for First-Time Presale Home Buyers
I was recently interviewed on this topic by Travis Prasad of Global BC and wanted to share my thoughts.
As of August 1, 2024 Canada’s federal government as part of the 2024 federal budget aimed at making homeownership more attainable for millennials and Gen Z. This new policy allows first-time home buyers to opt for a 30-year amortization period on insured mortgages for presales.
The New 30-Year Amortization Policy
Historically, Canadian home buyers have been mainly limited to a 25-year maximum amortization period on insured mortgages. The extension to 30 years represents a move to lower monthly mortgage payments, thereby increasing affordability. This policy is particularly geared toward younger generations who have been grappling with skyrocketing housing prices and the challenges of saving for a down payment amidst high living costs.
Salient Points of the Announcement
- Introduction of 30-Year Amortizations: The Canadian government is allowing 30-year amortizations for insured mortgages, targeting Millennials and Gen Z first-time homebuyers purchasing new builds.
- Effective Date: This policy begins on August 1, 2024.
- Objective: The goal is to reduce monthly mortgage payments, making homeownership more accessible and encouraging new home construction.
- Broader Housing Strategy: This initiative is part of the Canadian Mortgage Charter, which includes various measures to support homeowners and increase housing affordability.
This Policy Change Could Increase New Home Prices
This change allowing first time home buyers get a 30 year amortization on mortgages for new homes adds demand to a dramatically and chronically undersupplied Vancouver real estate market.
Vancouver suffers from a lack of supply of new homes rather a lack of demand.
There is a potential that this new policy could actually push up prices due to the failure and negligence on the part of local governments, the provincial governments, and the federal government to create the necessary regulatory and economic conditions to allow for sufficient new housing.
When adding extra demand to a market where supply is chronically and consistently restricted for a significant amount of time, prices tend to increase.
Real & Tangible Support for the Supply of New Housing is the Answer
Canada has been building far less homes than the increase in population (exacerbated by extremely high levels of immigration
The Cynical Take – The Liberal Party of Canada is trying to get Re-Elected
The cynic in me says this is a targeted policy to get votes from the young potential home buyers and others frustrated with their experience in the housing market.
The current federal government’s policy of extremely high immigration has been widely the blamed for Canada’s housing market woes, resulting in an extremely unpopular federal government up for re-election in 2025.
Based on consistent polling over time (See the Trudeau Tracker), the current federal government is potentially looking at a defeat not unlike the landslide federal elections for 1984 and 1983 and is willing to do anything to avoid that result even at the cost of pushing up real estate prices.
Impact on Presale Condos in Vancouver
In high cost markets like Vancouver, where presale condos are a popular choice among first-time buyers, the 30-year amortization option can be a game-changer. Here’s how:
- Lower Monthly Payments: Spreading the mortgage over 30 years reduces the monthly financial burden, making it easier for young buyers to enter the market.
- Increased Purchasing Power: With lower monthly payments, buyers may qualify for higher mortgage amounts, allowing them to consider properties that were previously out of reach.
- Enhanced Financial Flexibility: The reduction in monthly payments can free up cash flow for other expenses, savings, or investments.
- Could Push Up Prices – Vancouver suffers from a lack of supply of new homes rather a lack of demand. There is a potential that this could actually push up prices due to the failure and negligence on the part of local governments, the provincial governments, and the federal to create the necessary regulatory and economic conditions to create sufficient housing for Canadians.
Why This Matters for Millennials and Gen Z
Millennials and Gen Z face unique financial challenges, including high student loan debt, rising living costs, and competitive job markets. The 30-year amortization policy provides a tangible solution to one of the biggest barriers to homeownership: affordability. By lowering the threshold for entry, this policy helps young Canadians build equity and invest in their future earlier in their careers.
FAQ: 30-Year Amortizations for First-Time Presale Home Buyers
What is the new 30-year amortization policy?
The Canadian federal government has introduced a new policy allowing first-time home buyers to opt for a 30-year amortization period on insured mortgages for presales. This extension from the previous 25-year maximum aims to make homeownership more affordable by lowering monthly mortgage payments.
Who is eligible for the 30-year amortization?
This policy is specifically designed for first-time home buyers. To qualify, buyers must be purchasing a presale property and obtaining an insured mortgage.
How does the 30-year amortization benefit first-time buyers?
The 30-year amortization reduces the amount of each monthly mortgage payment by spreading the loan repayment over a longer period. This makes it easier for buyers to manage their monthly finances and potentially qualify for higher mortgage amounts.
What types of properties are covered under this policy?
The policy applies to presale properties, which are homes bought before they are built. This includes new condo developments and other types of new builds that are sold in advance of construction completion.
Can I still choose a 25-year amortization?
Yes, buyers can still opt for a shorter amortization period if they prefer. The 30-year option provides more flexibility but is not mandatory.
How does this policy affect mortgage insurance?
The 30-year amortization is available for insured mortgages. Mortgage insurance is typically required for buyers who have a down payment of less than 20% of the purchase price. The policy does not change the requirements for obtaining mortgage insurance.
What is the impact on total interest paid?
While the 30-year amortization lowers monthly payments, it also means that buyers will pay more in total interest over the life of the mortgage compared to a shorter amortization period. Buyers should consider their long-term financial goals when choosing their amortization period.
Why is this policy significant for millennials and Gen Z?
Younger generations face unique financial challenges, including high student loan debt and rising living costs. The 30-year amortization policy addresses affordability concerns, making it easier for millennials and Gen Z to enter the housing market and invest in their future.
How does this policy affect the Vancouver real estate market?
In a high-demand market like Vancouver, where presale condos are popular among first-time buyers, the 30-year amortization option can significantly enhance affordability and increase access to homeownership. This could lead to greater participation by younger buyers in the real estate market. It could also push up real estate prices in Vancouver and across BC.