Could longer amortizations solve the affordability crisis?

A 30-year limit on insured mortgages would be a boost to first-time buyers, advocates argue

Could longer amortizations solve the affordability crisis?

As mortgage professionals across Canada continue to grapple with the affordability and supply issues faced by their clients in the housing market, a range of possible solutions to those problems remains widely debated.

One idea that’s been floating around for some time is an extension of the amortization allowance on insured mortgages for new buyers, from its current 25-year limit to 30 years – a move that proponents say would ease the burden on first-time homebuyers and make housing more affordable for fresh entrants to the market.

It’s a proposal that’s reportedly been mooted at the highest levels in Ottawa, with the federal government having considered introducing legislation to allow 30-year insured mortgages as recently as 2019, according to The Globe and Mail.

To date, no progress has been made on that front – there was no mention of an increased amortization allowance for insured mortgages in the governing Liberals’ party platforms for the 2019 and 2021 federal elections.

Still, the idea continues to hold support elsewhere on Parliament Hill: it was a staple of the New Democratic Party’s (NDP) 2021 manifesto, which proposed 30-year terms to CMHC-insured mortgages on entry-level homes for first-time buyers.

It also has prominent advocates within Canada’s mortgage industry, with Paul Taylor, president and CEO of Mortgage Professionals Canada (MPC) having expressed the association’s support for a longer amortization period.

Read next: How the government hopes to change the purchasing process

Mackenzie Gartside (pictured top), a mortgage consultant with Select Mortgage based in Courtenay, British Columbia, told Canadian Mortgage Professional that such a move could improve affordability for first-time buyers while keeping the mortgage stress test rate at its current level.

That could be particularly helpful, she said, given the fact that there seems little indication the qualifying rate could change again this year.

“It would be nice to see some longer amortizations for first-time buyers,” she said. “As much as I am not a fan of the stress test, I do think now that we’re going to see interest rates increase, it gives me a little peace of mind knowing that we qualify those individuals at a much higher rate, that their affordability is still there.

“So rather than reduce the stress test, I think increasing the amortization for first-time buyers would allow them to have some more affordability at today’s price points.”

The federal government did introduce a policy directly aimed at improving the prospects of new entrants to the market back in 2019, the First Time Home Buyer Incentive.

That measure, intended to reduce monthly mortgage payments by allowing successful applicants to borrow a percentage of the purchase price from the government to put toward a down payment, has seen little uptake in Canada’s hottest markets – but Gartside said it had proven a useful tool to help some clients get their mortgage application over the line.

“I find it saves so many clients where their debt servicing is really tight,” she said. “They have 5% down, and then by using the First Time Home Buyer Incentive, getting them to that 10% down just kind of wiggles their ratios under the government maximum and allows them to get into housing.

Read more: Can the First-Time Home Buyer Incentive be salvaged?

“We have used it, I would say, more significantly than I’ve heard other people [are]. I don’t think it’s necessarily the best program, and locally in our little market here a lot of times, price point wise, it doesn’t work. But we do a lot of mortgages in Cranbrook, and in that market, we’ve probably done 10 {using the First Time Home Buyer Incentive].”

The shared equity element to the program – a government stake in the property – can sometimes dissuade clients from using it, Gartside said. Nonetheless, she added that it had been particularly helpful for customers in the lower price points who view the purchase as a long-term investment and aren’t unduly worried by the equity share.

There’s one particular development that augurs well for the mortgage industry in the year ahead, according to Gartside: the continuing contribution of lenders to the broker channel, offering a suite of products and options for clients to address a wide range of homebuying needs.

“All the lenders are being so incredibly innovative and bringing in new products, and the new lenders coming into the market are making our job much more flexible,” she said. “It’s giving clients flexibility with options, but it’s also just very hopeful from a broker’s perspective.”