With serious rumblings of a federal election happening in the not so distant future, the Federal Liberal party is making an attempt to capture the good will future home owners, mainly First Time Home Buyers.
The following changes have been proposed for December 15th, 2024:
- Increasing the $1,000,000 price cap for insured mortgages to $1,500,000 (first change since 2012)
- Expanding eligibility for 30-year amortizations to ALL First Time Homebuyers and to ALL buyers of New Builds
Insured Mortgages up to $1.5 Million
Increasing the price cap is not going to impact too many people across Canada, but it will definitely have a large impact in markets like Vancouver and Toronto. Those, especially in the lower mainland, who are buying a home worth more than $1,000,000, right now need to have more than $200,000 in cash depending on the final price. Based on the media release today, we could see that minimum down payment fall to $75,000 ($25,000 for the first $500,000 in price and $50,000 for the remaining $500,000 to get to $1,000,000). A purchase price of $1,500,000, if the sliding scale does not change, could allow for a minimum down payment of only $125,000.
This change is expected to be applicable to all potential home owners looking at buying owner occupied homes.
30-year Amortization for Insured Mortgages
On top of this insured mortgage increase, the ability now for ALL First Time Home Buyer’s who have less than a 20% down payment, to access a 30-year amortization, is quite substantial as well.
Right now, if you wanted to buy a $600,000 home as a First Time Home Buyer, you would need minimum down payment of $35,000. The mortgage amount would be $587,600 and the monthly mortgage amount would be roughly $3,275, on a 25-year amortization. The required income would be just under $135,000.
If you took that exact same scenario, but changed the amortization from 25-years to 30-years, that same mortgage goes from $3,275 a month to a little over $2,975…
This means, the required income of $135,000 a year goes down to $125,000. $10,000 a year of income is something, but not nearly as substantial as the impact on affordability.
That same borrower, or more realistically, those two borrowers who have $135,000 of annual gross combined income, no longer qualify for a $600,000 purchase price with $35,000 cash, they now qualify for $660,000 with the minimum down payment of $41,000.
That means, the change from maximum 25-year amortization to 30-year amortization for First Time Home Buyers who have less than 20% down payment, is close to a 10% increase in affordability.
A 10% increase in affordability can be the difference between 1-bedroom or 2-bedrooms. Can be the difference between 45-minutes to the office or 25-minutes. More importantly though, it can be the difference of $300 a month.
These changes aren’t expected to come into play for another couple months but given where interest rates are falling to, we could be seeing maximum affordabilities rise even more in the last quarter of 2024 on top of these new rules.
If you have any questions, please do not hesitate to reach out to me at ryanoake@dominionlending.ca and if you want to read the press release from the Government of Canada, please click here.