Over the last ten years, homeownership costs have soared, leaving many young millennials and Gen Z feeling as if homeownership is out of reach for their generations. From August 2014 to August 2024, the national benchmark price rose by 80% from $397,900 to $717,800, and with the combination of rising interest rates, mortgage payments have also climbed.
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Fortunately, the federal government recently announced the “boldest mortgage reforms in decades” and aims to put homeownership within reach for younger generations. The proposed mortgage reforms would go into effect on December 15, 2024, allowing all first-time homebuyers and buyers of new builds to have 30-year amortization periods. On top of that, the new measures will also increase the price cap for insured mortgages from $1 million to $1.5 million.
“This could be a game changer for younger generations eager to enter the housing market,” says Carrie Lysenko, Zoocasa CEO. “By extending amortization periods and raising the insured mortgage cap, a greater number of Canadians will have the opportunity to buy in more competitive and higher-priced markets like the Greater Toronto and Greater Vancouver areas, thus making homeownership more accessible in regions where it has previously felt out of reach.”
To help Canadians better understand the impact of these proposed changes, Zoocasa has broken down what the reforms mean and how they can make homeownership more attainable.
25-Year vs. 30-Year Amortization Periods
Earlier this year the federal government announced that first-time home buyers purchasing new builds, such as pre-con condos, would be eligible for 30-year amortizations, however many were hopeful that this measure would be extended to include those purchasing other types of homes as well. With the latest mortgage reform announcement, planned to go into effect on December 15, 2024, all first-time home buyers would now be eligible for this longer amortization period regardless of the type of home they are purchasing.
As rising housing costs affect more than just first-time buyers, all buyers of new builds, including investors, would now also be eligible for 30-year mortgages. This could make purchasing new builds more attractive, especially in high-demand markets.
So what’s the benefit of opting for a 30-year amortization instead of a 25-year one? The greatest advantage is that a mortgage that is spread out over a longer period of time will have smaller monthly payments, making the long-term cost of homeownership more manageable.
For example, a Toronto homeowner with a 25-year mortgage on a home priced at the average of $1,074,425 would pay $4,563 per month, whereas extending the mortgage to 30 years would reduce the monthly payment by $570, bringing it down to $3,993.
Similarly, homebuyers in Hamilton-Burlington, Kitchener-Waterloo, and Victoria can save over $300 per month by choosing a 30-year mortgage instead of a 25-year mortgage on homes bought at the average price.
Increasing the Price Cap for Insured Mortgages
For the first time since 2012, the price cap for insured mortgages is set to rise, increasing from $1 million to $1.5 million. Under the current system, buyers purchasing homes over $1 million must provide a down payment of at least 20%, which means putting down $200,000 or more upfront. This has created a significant barrier in high-demand markets like Toronto, Vancouver, and Hamilton-Burlington, where the average price of a detached home now exceeds $1 million.
By raising the insured mortgage cap, the new rule aims to make it easier for buyers to access insured mortgages with smaller down payments, reducing the initial financial burden and potentially opening the market to more first-time homebuyers. With the current $1 million price cap, many buyers are limited to purchasing condos or townhouses. However, with the proposed changes, buyers could broaden their search to include detached homes.
For instance, according to the latest report from the Toronto Regional Real Estate Board, the average price for a detached home exceeds $1 million in every region of TRREB except Brock, Clarington, Oshawa, Orangeville, and Simcoe County. This means prospective home buyers in the GTA looking for a detached home outside of these 5 areas wouldn’t be eligible for an insured mortgage.
What Home Buyers Should Consider About the Proposed Changes
While longer amortizations will help more people qualify for a mortgage and manage their monthly payments, they also mean the buyer will pay more in interest over the life of the mortgage. For instance, a recent Zoocasa analysis showed that the difference in interest paid between a 25-year mortgage and a 30-year mortgage could be upward of $100,000 in Toronto, Vancouver, Ottawa, and Kitchener-Waterloo. This is an important factor home buyers should consider when deciding whether to choose a 30-year or 25-year mortgage.
It’s also possible that these proposed mortgage changes could spark increased interest in the real estate market. Given the anticipated trajectory of interest rate cuts from the Bank of Canada, next year could see home prices driven up by a surge of buyers entering the market. If home prices increase further, then down payments and monthly mortgage payments could also be larger.