Lower mortgage insurance premiums for eligible purchasers
The Canada Mortgage and Housing Corporation (CMHC) has announced a 30-year amortization option for insured mortgages, which experts said could save first-time homebuyers thousands when purchasing a newly built home.
Effective August 1, CMHC will allow a 30-year amortization period for insured mortgages taken out by eligible first-time buyers. The introduction of this program is expected to increase interest in new construction among first-time buyers, potentially stimulating the supply of new homes.
"Just over half (55%) of all home buyers are first-timers, but affordability for new builds remains steep and beyond most high-ratio mortgages," said Penelope Graham, director of mortgage content at Ratehub.ca. "So this remains a niche group, with those most likely to use the program either buying condos in the big markets, or outside major city centres.”
Currently, insured mortgages are capped at 25-year amortizations. By extending to 30 years, it reduces monthly payments and improves affordability. However, buyers must pay a slightly higher mortgage default insurance premium.
CMHC is the government-backed agency that insures mortgages for those with a down payment of less than 20%. Ratehub said a borrower going with CMHC's 30-year option could save $2,200 compared to what private insurers charge.
For example, a buyer with a $400,000 mortgage would pay $13,200 in CMHC insurance premiums for a 30-year insured mortgage, compared to $15,400 from private insurers Sagen and Canada Guaranty.
“It's great that the CMHC is offering a more competitive option for first-time home buyers than the private insurers – any drop in the bucket helps this group,” Graham said. “Combined with other first-time home buyer federal programs, buyers now have a toolkit of options.”
To qualify, at least one purchaser must be a first-time home buyer, defined as someone who has never owned a home, has not occupied an owned home in the last four years, or has recently experienced a marital breakdown. The property must also be newly constructed and never previously occupied.
While the program is a step in the right direction, its impact may be limited in major urban centres due to high new construction prices.
"Those looking to extend their amortization to 30 years will likely be limited to condo prices well below the benchmark within large city markets, or look to new development options in less expensive markets," Ratehub noted in the report.
However, Graham remained optimistic: "While the mortgage industry would prefer this relief measure applied to all high-ratio mortgages, this is a start. It will also boost interest in the new construction segment among this borrower group, and further incentivize new supply measures."
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