The Liberal government on Monday announced proposed changes to the Canadian mortgage market, expanding the availability of 30-year amortizations and raising the cap on insured mortgage products.
First-time homebuyers, as well as those purchasing new builds, will soon be able to take out insured mortgages with a 30-year amortization, up from the typical 25-year payback period.
Additionally, the Liberals are raising the price cap for taking out insured mortgages to $1.5 million compared with the previous bar of $1 million.
Both proposed changes would go into effect on Dec. 15.
Deputy Prime Minister and Minister of Finance Chrystia Freeland made the announcements on Monday in Ottawa where members of Parliament are reconvening for the start of the fall sitting in the House of Commons.
She positioned the move as helping Canadians to afford a first home.
“It is going to put the dream of home ownership in reach for more young Canadians,” she told reporters.
Extending amortizations helps to reduce the monthly burden of carrying a mortgage, though a homeowner is likely to pay more in interest over the life of the loan.
Because households have to put down more than 20 per cent upfront when purchasing a home with an uninsured mortgage, the current price cap for insured mortgages creates a significant barrier for Canadians looking to purchase a property worth more than $1 million.
In some of Canada’s most expensive housing markets, the average home price is already above that bar, making it difficult for some prospective buyers to save enough to ever own a home.
Under the proposed changes, an individual could put down between five and 20 per cent of the value of a home worth up to $1.5 million, lowering the size of the down payment needed.
The proposals come after the Liberals instituted new changes as of Aug. 1 to allow 30-year amortizations for first-time homebuyers taking out insured mortgages on new builds.
Freeland was asked Monday about concerns that adding more buyers to the housing pool would drive up home prices and end up further eroding affordability.
She defended the moves as giving a “leg up” to younger Canadians, offering them an advantage over established owners in the market.
“With these measures, first-time homebuyers are going to be in a stronger position. We think that’s the right thing to do,” she said.
Freeland also said that part of the motivation in focusing the proposals on new builds is to help incentivize builders to get more shovels in the ground and filling in Canada’s noted housing supply gap.
“We want people to be building more homes faster in Canada. And for them to do that, it’s critical that there be buyers out there for those homes,” she said.
“These are big moves, this is a very significant step when it comes to mortgages and amortization. … It’s important to be thoughtful and careful in this space, and we are and we have been.”