on August 1, 2024 
Effective today (August 1, 2024), first time buyers of newly built homes can now choose a 30 year amortization on their high-ratio insured mortgages. Before, buyers were limited to a maximum amortization of 25 years.
Choosing the longer amortization period reduces the mortgage’s minimum required monthly payments, and therefore allows borrowers to qualify for a higher mortgage amount under the rules of the government stress test formula.
This change only affects high-ratio mortgages for the purchase of a newly built property. All other mortgages that require high-ratio insurance are still limited to 25 year amortizations.
How does this change things?
Previously, for a purchase price of $450,000 with 5% down payment, borrowers with no other debt would have needed about $105,000 in total household income to qualify for the purchase and would have had monthly payment of about $2,483.03.
With the new 30 year amortization, the same property could be purchased by borrowers with a slightly lower household income of $98,500 and they would have minimum monthly payments of $2,269.44.
While the increase to amortization will help some buyers get onto the property ladder in the short term, given the lack of new real estate supply in Canada, we expect the impact in the short term will be to drive up the prices on new construction marginally until first time buyers are right back to qualifying for the same properties as they could before. However, the longer term impact of this program may be to encourage more construction of new properties that target younger demographics (condos and townhouses) because right now the construction industry seems most focused on building single-family detached houses catering to older purchasers (which sell at higher prices and have more profit margin).
Should I take a 30 year amortization?
For buyers who have been on the margin (not quite able to afford that new condo they need) and who act quickly (in the next few months) this option may indeed allow you to buy where you otherwise could not. The higher amortization does come at a cost of a higher mortgage insurance premium as well as higher overall mortgage interest paid over the life of the mortgage, but those factors might indeed be offset by savings such as no longer paying high rent.
For a specific analysis of your situation and whether this new option is right for you, book your First Time Buyer consultation through our online scheduling page or give us a call at 250-331-0800.
https://comoxmortgages.com/schedule-appointment/
For the full details on the new program, you can find the Department of Finance press release here:
