As of August 1, first-time homebuyers purchasing newly-built homes with less than a 20% downpayment will be able to extend their amortization period to 30 years. Currently, buyers with less than a 20% downpayment must take out Canada Mortgage and Housing Corporation (CMHC) insurance and are limited to a 25-year amortization. With a 30-year amortization, buyers’ monthly payments are lower than the 25-year period, however, borrowers will pay more interest on their mortgages with the longer term. “It’s been heralded as an effective solution by the mortgage industry to improve housing affordability,” says James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender. “While this new measure is smaller in scope than industry watchers had hoped, it’s a positive start.” “We would have liked to see this applied for all first-time home buyers, regardless of the type of housing they have purchased. The government has probably targetted newly-built homes to increase demand, hoping that supply will follow, incentivizing more homes to be built.” A premium surcharge of 20% will be applied to qualified first-time homebuyers opting for the increased amortization of 30 years, which takes into consideration the capital impact of the longer amortizations. The coverage is a mandatory add-on cost for anyone with a high-ratio mortgage; it protects the lender from the higher default risk profile of these borrowers. “Just over half (55%) of all home buyers are first-timers, but affordability for new builds remains steep and beyond most high-ratio mortgages,” says 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.” Mortgage default insurance is provided by CMHC as well as two private insurers, Sagen and Canada Guaranty, says Graham. “CMHC is currently offering the lowest premiums for those who wish to take out a 30-year amortization, adding just 20 basis points to their existing high-ratio premiums,” she says. “The premium amount is based on the borrower’s loan-to-value ratio (LTV) which reflects the size of the mortgage they’ve taken out.” “An LTV within the range of 80.01% to 95% is classified as a high-ratio mortgage.” As an example of the cost of premiums, a borrower with a $400,000 mortgage would pay $13,200 for CMHC mortgage default insurance, compared to $15,400 with Sagen or Canada Guaranty, says Graham. “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,” she says. “Combined with other first-time home buyer federal programs buyers now have a toolkit of options.” “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.”
As of August 1, first-time homebuyers purchasing newly-built homes with less than a 20% downpayment will be able to extend their amortization period to 30 years. Currently, buyers with less than a 20% downpayment must take out Canada Mortgage and Housing Corporation (CMHC) insurance and are limited to a 25-year amortization. With a 30-year amortization, buyers’ monthly payments are lower than the 25-year period, however, borrowers will pay more interest on their mortgages with the longer term. “It’s been heralded as an effective solution by the mortgage industry to improve housing affordability,” says James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender. “While this new measure is smaller in scope than industry watchers had hoped, it’s a positive start.” “We would have liked to see this applied for all first-time home buyers, regardless of the type of housing they have purchased. The government has probably targetted newly-built homes to increase demand, hoping that supply will follow, incentivizing more homes to be built.” A premium surcharge of 20% will be applied to qualified first-time homebuyers opting for the increased amortization of 30 years, which takes into consideration the capital impact of the longer amortizations. The coverage is a mandatory add-on cost for anyone with a high-ratio mortgage; it protects the lender from the higher default risk profile of these borrowers. “Just over half (55%) of all home buyers are first-timers, but affordability for new builds remains steep and beyond most high-ratio mortgages,” says 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.” Mortgage default insurance is provided by CMHC as well as two private insurers, Sagen and Canada Guaranty, says Graham. “CMHC is currently offering the lowest premiums for those who wish to take out a 30-year amortization, adding just 20 basis points to their existing high-ratio premiums,” she says. “The premium amount is based on the borrower’s loan-to-value ratio (LTV) which reflects the size of the mortgage they’ve taken out.” “An LTV within the range of 80.01% to 95% is classified as a high-ratio mortgage.” As an example of the cost of premiums, a borrower with a $400,000 mortgage would pay $13,200 for CMHC mortgage default insurance, compared to $15,400 with Sagen or Canada Guaranty, says Graham. “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,” she says. “Combined with other first-time home buyer federal programs buyers now have a toolkit of options.” “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.”
