The federal government has announced new housing affordability measures to help first-time buyers purchase their first home.
The measures were announced by Finance Minister Chrystia Freeland last week in Toronto, and reaffirmed in Tuesday’s federal budget unveiling.
Starting on August 1, the government is extending amortization periods—the length of time a homeowner has to pay off a mortgage in full—to up to 30 years. Increased amortization will only apply to insured mortgages for first-time buyers purchasing new builds.
Under the current policy, if a down payment on a new build is less than 20 per cent of a home’s price, the longest amortization period allowed is 25 years.
“A big part of qualifying for a mortgage is ensuring you can pay the monthly costs that come with it,” said Freeland in the announcement. “For many younger Canadians, these costs are a significant barrier to home ownership.”
Freeland said that the extended amortization period will give first-time home buyers more flexibility in making these mortgage payments.
Lower mortgage payments can “make or break” a first-time buyer’s bank account, says Desmond Nwaerondu, a financial advisor at Sun Life in Calgary. A reduction of even a couple hundred dollars in monthly payments can help first-time buyers feel more comfortable taking the leap into homeownership, he says.
But Nwaerondu says most first-time buyers aren’t looking to purchase a new build. New builds are typically more expensive to begin with and include GST fees that buyers don’t incur when purchasing existing homes.
And other experts say the positive impacts of the new measures might not be felt for long.
“The first people to take advantage will benefit from this policy,” says Rishi Sodhi, an economist at TD Bank in Newmarket, Ont.
Once more people are buying, he expects that the increased demand will drive prices up.
“When prices go up, this erodes affordability for future buyers.”
The federal government is also increasing the amount that buyers can withdraw from their RRSPs for the purchase of their first home. Starting April 16, Canadians are able to withdraw $60,000 tax-free to put towards a down payment of their first home, up from $35,000.
Additionally, first-time home buyers will have longer to start repaying their withdrawals. First-time home buyers who have made or will make withdrawals from Jan. 1, 2022 to Dec. 31, 2025 will now have five years to start making repayments instead of two.
Up until this point, Nwaerondu says that he’s been guiding clients to save $35,000 for a down payment, then roll the rest into another tax-free savings account like a TFSA or First Home Savings account.
“This new measure gives us more tax-planning opportunities for those who have extra cash to put towards a down payment,” he says.
However, many young Canadians are concerned about having enough funds to make a down payment. A 2023 survey from Royal LePage found that 67 per cent of first-time home buyers are worried about missing out on a place they’re interested in purchasing because of insufficient funds.
“Putting a larger down payment is great, but we want to be financially conscious to make sure our clients are not stretching beyond their means simply to purchase a house,” says Nwaerondu.
So what does this mean for future cottage owners?
“First-time home buyers are already overstretched in this housing landscape,” says Sodhi. “It could take many years to jump into a second property.”
The new amortization period also only applies to first-homes, not secondary properties like a cottage.
“If you’re talking about cottage country in Ontario, a big chunk of those buyers are coming from the GTA, where home prices are expensive,” says Sodhi. Potential cottage-buyers will have to take into consideration the mortgages they’re already paying off and if they have other sources of income to fund a second property, like a financial gift from family.
“For first-time buyers, you have to save and leverage gifts,” he says. “It’s not impossible.”
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