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Federal government introduces 30-year amortizations for some insured borrowers

Key points:

  • The federal government will allow 30-year amortization periods for insured first-time home buyers purchasing newly-constructed homes, as of August 1, 2024.
  • The withdrawal limit for the RRSP Home Buyers' Plan has been expanded to $60,000, with an additional three years for buyers to start paying it back.
  • The Canadian Mortgage Charter has been updated to recommend lenders make permanent extended amortizations for distressed mortgage borrowers.

30-year amortizations to come for some insured mortgage borrowers

The federal government has divulged several new housing measures designed to ease young buyers into the market, just days ahead of the full 2024 Budget.

In an announcement made Thursday afternoon, Finance and Deputy Prime Minister Chrystia Freeland revealed the changes, including longer mortgage payback periods for some buyers.

As of August 1, 2024, first-time home buyers purchasing new construction, and who require a high-ratio mortgage, will be able to amortize their mortgage over 30 years. Currently, anyone who pays less than 20% down on their home purchase is limited to a 25-year amortization period, while those who pay more than 20% down can have up to 30-35 years to pay their mortgage back, depending on their lender.

Also read: Insured vs uninsured mortgages

“First-time home buyers will now have 30 years to pay off their mortgage, instead of 25,” Freeland stated. “That translates to lower monthly payments, so more younger Canadians can afford to pay that monthly mortgage on a new home.”

Extending amortizations for the insured borrower group has long been called for by the mortgage industry as a meaningful way to improve affordability. Longer payment timelines can immediately remove pressure on borrowers, as it spreads payments out, making them more manageable and improving the borrower’s overall debt-servicing ratios. 

“We would have liked to see this applied for all first-time home buyers, regardless of the type of housing they have purchased,” says James Laird, Co-CEO of Ratehub.ca and President of CanWise mortgage lender.

“The government has probably targeted newly built homes to increase demand, hoping that supply will follow, incentivizing more homes to be built.”

Making extended amortizations permanent

Freeland also announced an enhancement to Canada’s Mortgage Charter, stating the expectation that lenders make permanent extended amortization relief for borrowers who are facing “challenging financial situations”, including insured borrowers. She cited an example of an insured borrower with an original 25-year amortization receiving an extension to 35 years in order to reduce their payment size.

This tactic was widely used by lenders in the latter half of 2023 in order to support the growing number of variable-rate mortgage holders on fixed payment schedules, who were entering negative amortization due to the Bank of Canada’s rapid rate hike cadence. These extra-long mortgages became a notable presence in banks’ mortgage books; clients with amortizations over 30 years made up between a quarter and 32% of the big bank portfolios as of last spring.

However, according to OSFI head Peter Routledge, the number of mortgages with amortizations over 35 years has lowered considerably, now accounting for $220 billion of lender mortgage portfolios – a 27% decline from $300 billion.

“Notwithstanding that risk, I’ve been pleasantly surprised at how Canadians and their lenders continue to manage it down,” he stated at a National Bank conference in late March.

As well, given the Charter is only a strong recommendation for lenders and not legislation, it’s unclear how much of a difference this new point will make for borrowers.

“The proposed changes to the Canadian Mortgage Charter are mostly political talking points and will have little real world impact,” Laird adds.

More room in the RRSP Home Buyers’ Plan

The remaining tidbit announced today is an expansion to the withdrawal limit for the RRSP Home Buyers’ Plan, from $35,000 to $60,000, to take effect on April 16, 2024. The government has also extended the repayment start period to a full five years, from the current two, for those who make HBP withdrawals between January 1, 2022, and December 31, 2025. This will allow borrowers to “focus on mortgage payments and other costs,” Freeland said.

“The increase to the RRSP Home Buyers’ Plan and the extra three years to start repayment will both be welcomed by those who have been able to contribute significantly to their RRSPs,” adds Laird. 

“This, combined with the First Home Savings Account, gives first-time home buyers significant tax incentives to save their down payment.” 

This latest sneak peek is part of a larger package of housing policies teased by the Liberal government in recent weeks that has included:

  • $6 billion for provinces for the creation of water, sewer, and waste system infrastructure to support new community builds, under conditions they require fourplexes as a right
  • Renters will have national standard lease with strengthened renovictions protection
  • Renters to be able to use payment history to build credit score
  • $15 billion pledged for rental construction loans

We’ll report back on the full housing measures released in the Federal Budget on April 16, 2024.

Also read:

Penelope Graham, Head of Content

Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.