Extended Amortization Now Comes at an Even Higher Cost with Revised Insurance Premiums
Earlier this year, the Canadian government unveiled a new policy allowing 30-year amortization periods for insured mortgages, aimed at first-time homebuyers. The catch, however, is that the Canada Mortgage and Housing Corporation (CMHC) will charge a 20 basis point increase in premiums for these extended mortgages – raising questions about the policy’s effectiveness in improving housing affordability.
Starting August 1, eligible buyers purchasing newly built homes under $1 million with less than a 20% down payment can opt for the longer amortization period. Finance Minister Chrystia Freeland stated the policy is designed to make homeownership more attainable for young Canadians by reducing monthly mortgage costs.
Industry experts have expressed mixed reactions to the new measure. While some acknowledge the potential for lower monthly payments, others highlight limitations that may restrict its impact. The strict eligibility criteria, focusing on new builds under $1 million, effectively limits many buyers to the condo market in high-cost areas like Ontario and British Columbia.
Mortgage professionals point out that the higher insurance premium, though not substantial, also adds to the overall cost for buyers. They also note that new construction homes typically come with higher prices per square foot compared to resale properties, potentially offsetting the benefits of increased borrowing capacity.
The policy’s effectiveness varies by region, with potential benefits more pronounced in the Prairies and Maritimes, where new builds are more likely to fall under the $1 million threshold. However, these areas generally face less severe affordability challenges compared to major urban centers like Toronto and Vancouver.
Some experts suggest that indexing the $1 million cap to inflation or expanding eligibility to include resale homes could enhance the policy’s impact. Others emphasize the need for a comprehensive approach to housing accessibility, including measures to stimulate supply and manage demand.
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