Ottawa changing RRSP Home Buyers’ Plan, some mortgage amortization rules

The federal government has announced a series of measures to make it easier for first-time buyers to break into the housing market with changes to the Home Buyers’ Plan and amortizations on some mortgages.

Finance Minister Chrystia Freeland unveiled the changes Thursday morning, the latest housing-focused announcement ahead of her tabling the 2024 federal budget on April 16.

“Faced with a shortage of housing options and increasingly high rents and home prices, many younger Canadians feel that the dream of homeownership is just that, a dream,” Freeland said in Toronto.

“Our government is changing that. We want home ownership to be a reality for younger Canadians.”

Among the changes are an increase in the withdrawal limits under the Home Buyers’ Plan, which allows Canadians to take money out of a registered retirement savings plan (RRSP) to put towards the down payment for a first home.

As of April 16, homebuyers would be able to draw down as much as $60,000, up from the previous limit of $35,000, from their RRSP towards a home purchase.

The Home Buyers‘ Plan allows individuals to make the withdrawals tax-free from their RRSP as long as it’s paid back into the account over the course of 15 years.

Freeland said Ottawa is now giving Canadians five years before they have to start paying back that amount, up from two years. The extension applies to anyone who makes or has made a withdrawal from the Home Buyers’ Plan between 2022 and 2025.

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Ottawa is also allowing amortizations on some mortgages to stretch up to 30 years in a bid to make monthly payments more affordable for first-time buyers.

As of Aug. 1, first-time homebuyers purchasing a newly built property can get an insured mortgage with a 30-year amortization – the time it takes to pay back a loan.

The move is aimed at reducing the burden of carrying a mortgage for first-time homebuyers.

Stretching out amortizations to 30 years from the traditional 25 years will reduce the magnitude of monthly payments, though the overall amount of interest paid over the lifetime of a mortgage could rise.

The changes also apply only to insured mortgages, which are open to buyers who put less than 20 per cent of the value of the home in a down payment or on properties worth less than $1 million.

Victor Tran, mortgage and real estate expert at comparator site Rates.ca, said in a statement Thursday that the proposed changes might not help buyers in Canada’s most expensive housing markets.

“While it’s currently possible to get an insured mortgage with a new build, it’s rare. For hot markets such as Vancouver and the GTA, most new condo and freehold builds are priced over one million, which means buyers have to take uninsured mortgages,” Tran said.

The Canadian Home Builders’ Association (CHBA), which had been calling for changes to extend mortgage amortizations, applauded Freeland’s announcement Thursday.

CEO Kevin Lee in a release said that extending mortgage amortizations, and thereby making it easier for Canadians to qualify to finance their first home purchase, will help to ramp up the pace of building in the country.

“This measure is needed now, to help turn the market around, and will be needed for many years to come if we are to work towards doubling housing starts. The problem has been simple: if buyers cannot get a mortgage to buy a home, then builders cannot build,” he said.

The federal government also signalled it will amend the Canadian Mortgage Charter, introduced in November’s Fall Economic Statement, to offer “permanent” amortization relief to struggling homeowners.

“Where appropriate,” eligible homeowners would be able to apply to their lender for an extended amortization for as long as they need it to make their monthly payments more manageable, according to a release from Finance Canada. The release did not say what criteria homeowners would need to meet to qualify for such relief.

Freeland also said Thursday that more than 750,000 first home savings accounts (FHSA) have so far been opened across Canada roughly a year after the registered savings vehicle was introduced. Like the RRSP’s Home Buyers’ Plan, the FHSA allows Canadians to set aside up to $40,000 tax-free towards the down payment of a home, though the amount does not need to be paid back.

Freeland’s announcements come the same day a CIBC poll shows 76 per cent of non-homeowners say buying their first property feels “out of reach.”

The Liberal government has been on a cross-country tour over recent weeks to tout housing-focused promises included in the upcoming federal budget.

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