Impact of Canada's New 30-Year Mortgage Amortizations

The Canadian government has introduced 30-year amortization periods for insured mortgages, effective August 1, in an effort to make homeownership more accessible for Millennials and Gen Z. However, critics argue that these new measures are too restrictive to significantly impact the housing market in Canada’s more expensive cities.

This new policy only applies to insured first-time homebuyers purchasing new builds. While extending mortgages by five years from the standard 25-year term is intended to make monthly payments more manageable, the reality is more complex.

Who Benefits?

The Canadian Homebuilders’ Association (CHBA) supports the move, stating that the new amortization periods will help address inequalities in mortgage access for young Canadians. However, the policy is limited to insured mortgages, which are only available to buyers who put down less than 20% of the home’s purchase price and for homes costing less than $1 million.

Critics point out that in cities like Toronto and Vancouver, where home prices are typically over $1 million, the policy will have minimal impact. As a result, the benefits will largely be seen in smaller cities and towns where property prices are lower.

A Limited Scope

Despite the potential benefits, experts caution that the new rules are unlikely to significantly impact the housing market. Toronto mortgage broker Mitch Mannella explains that the policy benefits a very small subset of the market. “In Toronto, a new construction is likely going to be over a million dollars to purchase, so these buyers wouldn't even qualify for the program,” he says.

For those in smaller cities, the new 30-year amortizations might offer some relief. However, the overall impact on housing affordability and construction remains to be seen. Some experts believe that while the policy could spur new housing starts in less expensive markets, it may not be enough to address the broader issues of housing affordability in Canada.

Future Considerations

The CHBA is optimistic that the focus on new construction will help first-time buyers enter the market without significantly impacting demand and prices in the existing housing market. They hope to see the program expanded to include all insured mortgages on new construction, which could help more Canadians move up the property ladder and free up entry-level homes for new buyers.

In theory, this sounds promising. However, whether young Canadians in smaller cities will take advantage of the new 30-year amortizations, and whether this will significantly impact housing affordability, remains to be seen. It will be interesting to watch if the government expands on this program and if it achieves its intended goals.