Amortizations up to 30 years for first-time home buyers of new builds and presales in Canada

30-Year Amortization Mortgages for First-Time Presale Home Buyers

I was recently Travis Prasad, Global BC, interviewed Travis Prasad on this topicI just wanted to share with you 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 allowsFirst-time homebuyersChoose a 30-year amortizationPeriod on insured mortgages presales.

The New 30-Year Mortgage Policy

In the past, Canadian homebuyers were mainly restricted to a maximum amortization period of 25 years on insured mortgages. The extension of the amortization period to 30 years is a move towards lowering monthly mortgage payments and increasing affordability. This policy is aimed at younger generations who are struggling to save for a downpayment and deal with high living costs.

The Announcement’s Key Points

1. Amortizations for 30 Years IntroducedThe Canadian government has allowed 30-year amortizations on insured mortgages. This is aimed at first-time buyers of new homes, such as Millennials and Gen Z.
2. Effective DateThis policy will begin on August 1, 2024.
3. You can also view the website at:The goal is to make homeownership more affordable and encourage new home construction.
4. Broader Housing StrategyThis initiative is a part of the Canadian Mortgage Charter which includes a variety of measures to help homeowners and increase housing affordability.

This policy change may increase the price of new homes

This change allows first time homebuyers to get a mortgage amortization of 30 years for new homes. This will add demand to Vancouver’s chronically undersupplied real estate market.

Vancouver is not suffering from a shortage of new homes, but rather a lack in demand.

There is the potential for this new policy to be successfulPrices could rise by as much as 20% 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.

Prices tend to rise when there is an increase in demand on a market that has been chronically and consistently limited for a long time.

Real & Tangible Support for the Supply of New Housing is the Answer

Canada has built far fewer homes than the population increase (exacerbated by high levels of immigration).

The Cynical Take – The Liberal Party of Canada is trying to get Re-Elected

The cynic inside me says this is an election-driven policy designed to win votes from young people who are interested in buying a home and others who are frustrated by their experiences in the housing markets.

The current federal government’s policy of Immigration levels are high 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 (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

The 30-year amortization can be a game changer in high-cost markets like Vancouver where presale condos have become a popular choice for first-time buyers. Here’s how:

1. Reduced Monthly PaymentsSpreading the mortgage out over 30 years makes it easier for younger buyers to enter into the market.
2. Purchase Power Increased:Lower monthly payments may allow buyers to qualify for a higher mortgage amount, allowing them the opportunity to consider properties previously out of their reach.
3. Increased Financial FlexibilityThe reduction in monthly payments will allow you to free up your cash flow and use it for other expenditures, savings or investments.
4. Could Push Up Prices – Vancouver’s problem is not a lack in demand, but rather a lack in supply of new housing. 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 to Millennials and Generation Z

Millennials (Gen Z) and Gen X face unique financial issues, including high student debt, rising costs of living, and a competitive job market. The 30-year amortization plan is a tangible way to overcome one of the largest barriers to homeownership, affordability. This policy allows young Canadians to build equity and invest for their future at an earlier stage of their careers by lowering the entry threshold.

FAQ: 30-Year Mortgages for First-Time Pre-Sale Home Buyers

What is the new 30 year amortization policy?

The Canadian federal government introduced a policy that allows first-time buyers to choose a 30-year amortization on insured mortgages. This extension of the previous maximum 25-year period aims to make homeownership affordable by lowering mortgage payments.

Who is eligible to receive the 30-year amortization period?

This policy was designed specifically for first time home buyers. To qualify for this policy, buyers must purchase a pre-sale property and obtain an insured loan.

How does the 30-year amortization help first-time home buyers?

The 30-year amortization spreads out the loan repayment over an extended period, reducing the monthly mortgage payment. This makes it easier to manage monthly finances for buyers and may even qualify them for higher mortgage amounts.

What types properties are covered?

This policy covers presale homes, which are homes purchased before they have been built. This includes new condominium developments and other types that are sold prior to construction completion.

Can I still choose to amortize my loan over 25 years?

Yes, buyers are still able to choose a shorter amortization if they so desire. The 30-year term offers more flexibility but it’s not mandatory.

How does the policy affect mortgage insurance coverage?

For insured mortgages, the 30-year amortization option is available. Mortgage insurance is required by most buyers who put down less than 20%. The policy does nothing to change the requirements of obtaining mortgage insurance.

What is the total amount of interest paid?

While a 30-year amortization reduces monthly payments, the buyer will pay more interest in total over the life span of the loan compared to a shorter period. When choosing the amortization period for a mortgage, buyers should take into account their long-term financial goals.

Why is this important for millennials and Generation Z?

The younger generations are faced with unique financial challenges. These include high student loan debts and rising living expenses. The 30-year amortization policy addresses affordability issues, making it easier to enter the housing and investment markets for millennials and Generation Z.

How will this policy affect Vancouver’s real estate market?

In a market where there is a high demand for condos, as in Vancouver, where they are popular among first time buyers, the 30-year option can make homeownership more affordable and easier to achieve. This could encourage more young buyers to get involved in the real-estate market. It could also drive up real estate in Vancouver and throughout BC.