There was a recent announcement from the Federal Government regarding the maximum amortization for insured mortgages for First Time Home buyers when purchasing newly built homes, up to 30 years, from the current maximum of 25 years. This change is effective August 1st, 2024.
This change is in addition to the previously announced Tax Free First Home Savings Account (FHSA), which was announced earlier this year and came into affect on April 1st.
The primary aim of the changes to amortization rules is to make the purchase of newly built properties, especially condos, more affordable for First Time Home Buyers, and at the same time help home builders make their newly built homes more attractive. This is most important for condominiums which are currently viewed as too expensive and have been historically geared to First Time Homeowners by builders.
Between these 2 announcements, first time home buyers are now able to save faster for a downpayment AND be able to reduce their monthly payments, since they will have an additional 5 years to pay off the mortgage.
The announcement has caused a bit of confusion as some people assumed that it was a change was across the board, however, in order to qualify you MUST be a “First Time Homebuyer“ and it MUST be a newly built home. To qualify for the program, both criteria must be met.
Let’s dig a little deeper into each of these items.
First, to be considered a First Time Homebuyer you must fit the following:
- You have never purchased a home before OR within the past four years, you have never occupied a principal residence that you or a current spouse or common law partner owned. An exception to this is if there has been a marriage breakdown, or breakdown of a common law relationship. The details of this will be handled in a similar manner to how the CRA regulates the Home Buyer’s Plan.
- At least one eligible borrower must occupy the property
- At least one of the purchasers must fit the definitions identified above.
For Eligible Properties, they must meet the following criteria:
- Must be between 1 and 4 units
- Must be owner occupied, no rentals allowed
- Must be newly built, freehold homes and condos only, that have never been occupied. Resale properties do not qualify.
Finally, this measure only applies to high-ratio mortgages, where the loan amount exceeds 80% of the home price and there is a .20% surcharge to these Insurance Premiums when the amortization is extended to 30 years. The premium is calculated based on the Loan to Value (LTV) ratio (mortgage amount divided by purchase price).
You can read additional details on this announcement from the Government of Canada website.
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