Breadcrumb trail links
Starts on August 1st for default insured first-time buyers buying newly built homes
Published on April 11, 2024 • Last updated 9 hours ago • 2 minutes reading time
You can save this article by registering for free here. Or log in if you have an account.
Canada announced Thursday it will relax mortgage rules to allow first-time buyers to take out 30-year loans when purchasing newly built homes. Photo by Gene J. Puskar/The Associated Press
Article content
Despite the rise in US inflation on Wednesday, the Bank of Canada meeting and the 14 basis point increase in Canada's 5-year bond yields, our leading mortgage rates are still unchanged from last week.
Fortunately, our mortgage market is not as yield sensitive as in the United States. There, some of the most competitive interest rates immediately rose by around 15 to 20 basis points after yesterday's scary inflation report.
Advertising 2
This ad has not loaded yet, but your article continues below.
THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and more.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
- Daily puzzles including the New York Times Crossword.
SUBSCRIBE TO UNLOCK MORE ARTICLES
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and more.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic copy of the print edition that you can view, share and comment on any device.
- Daily puzzles including the New York Times Crossword.
REGISTER/LOGIN TO UNLOCK MORE ARTICLES
Create an account or log in to continue your reading experience.
- Access articles from across Canada with one account.
- Share your thoughts and join the discussion in the comments.
- Enjoy additional articles per month.
- Get email updates from your favorite authors.
Log in or create an account
or
Article content
Article content
Luckily, Canada has a little more leeway until most banks increase borrowing costs. Before fixed rate hikes take hold, yields would likely need to rise by at least another 10 to 15 basis points or so. However, if your mortgage expires before September, you should still allow an interest deferral.
Big changes are coming
The biggest mortgage news of the week is Canada's reintroduction of 30-year repayments. They start on August 1st for default-insured first-time buyers who buy newly built houses.
Since 2012, insured mortgages have been limited to a payback period of 25 years. The change comes at a time when housing affordability is at a record low.
Here is the brief overview of this policy revival:
- If you as a first-time buyer make a down payment of at least five percent, you will receive around five to 5.5 percent more home with a depreciation period of 25 to 30 years, other things being equal.
- Alternatively, this could reduce the income required to take out a mortgage by over five percent. These calculations are based on a mortgage interest rate of 4.99 percent and no other debts.
- According to Kevin Lee, executive director of the Canadian Home Builders' Association, this change is expected to attract more buyers to the market, address high interest rates and support prices, which will lead to more construction activity. Building more helps address the main problem facing housing construction: the lack of living space excessive immigration.
Advertising 3
This ad has not loaded yet, but your article continues below.
Article content
Separately, the government is also increasing the withdrawal limit of the RRSP Home Buyers' Plan for new home buyers. However, only a small proportion of buyers even make use of the $35,000 limit.
As for price, proponents say the new 30-year amortization policy will only reduce the value of new homes by a small single-digit percentage, but that remains to be seen. In any case, it is a good gamble considering that the government cannot yet adequately solve the supply problem.
Recommended by Editorial
-
These are currently the lowest nationwide mortgage rates in Canada
-
Growing skepticism about interest rate cuts is putting pressure on the mortgage market
-
The reverse mortgage card puts a vivid twist on unlocking home equity
What we know for sure is that the measures announced today will improve homebuyer sentiment, which typically supports overall home prices.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X below @RobMcLister.
Would you like to learn more about the mortgage market? Read Robert McLister's new weekly column in the Financial Post for the latest trends and details on funding opportunities you won't want to miss
Bookmark our website and support our journalism: Don't miss out on the business news you need to know – bookmark Financialpost.com and sign up for our newsletter here.
Article content
Share this article on your social network