Of all the housing measures federal government has announced lately, the one with the most immediate impact will be expanding the availability of 30-year mortgages.
Starting Aug. 1, first-time buyers purchasing newly built homes with a down payment of less than 20 per cent will be able to amortize their mortgages over 30 years, up from the current 25. If you put down 20 per cent or more on a mortgage, and thus don’t need mortgage default insurance, you can already amortize over 30 years.
To get a sense of how broadening of the 30-year mortgage will affect the marketplace, I checked in with mortgage broker Victor Tran of True North Mortgage. Mr. Tran’s clients are in the Toronto area, where the average home price is above $1-million. He said eight in 10 of his clients come in with a down payment of 20 per cent or more, often to secure a 30-year amortization. Also, on houses costing $1-million or more, 20 per cent is the smallest possible down payment.
Focusing strictly on newly built homes reduces the risk that opening up 30-year mortgages to more buyers will stoke demand and push prices higher. But Mr. Tran said most developers require a deposit of at least 20 per cent for new homes. “It makes sense for developers to request a large deposit because they need the funding to get the construction going,” he said.
Mr. Tran also noted the potential for developers to increase prices if demand for newly built homes increases. As for the impact of amortizing a home over 30 years instead of 25, he pegged the savings at about $250 per month on a $500,000 mortgage at a 5 per cent rate. “Every bit of savings helps,” he said.
Much of the federal government’s efforts to improve housing affordability will focus on getting more homes built. But there’s one more measure with potential to have a quick impact. In the budget to be released Tuesday, the government will propose that first time buyers be able to withdraw a maximum of $60,000 from registered retirement savings plans under the federal Home Buyers’ Plan, up from $35,000.
Mr. Tran said his clients are already funding their down payments with a mix of money from RRSPs and tax-free savings accounts and doesn’t see the extra RRSP withdrawal room making much difference.
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Rob’s personal finance reading list
TFSA tips for avoiding penalties
A review of contribution rules for TFSAs. Over-contribution penalties cost an average of close to $1,500.
A look at some vintage Toronto real estate ads from the 1970s, when you could buy a nice home in the $30,000 range. The average Toronto resale home price in March was $1.1-million.
Five tax software programs compared, with a best chosen for various situations, including young tax filers and complex returns.
A small Quebec town will lose its only ATM shortly. The reason: People are using debit or credit cards, not cash. I’m trying to remember the last time I paid for a purchase with cash….still trying.
Reader comment: “Re roadside assistance programs: I’m not sure about Canadian Tire’s program, but CAA membership also works in the U.S. Over the years, I’ve locked myself out of a rental a couple of times, and the CAA (California Auto Associaton) fixed me up.”
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Tools and guides
The yield curve, explained. Read this if you want to understand this important and oft-mentioned financial term.
In the social sphere
Social Media: Reactions on X to news that the federal government will allow people to withdraw up to $60,000 from an RRSP to buy a home, up from $35,000.
Watch: An investment adviser on LinkedIn adds a humorous video to make his point about how some people are in over the heads as DIY investors. DIY investing isn’t for everyone, but it definitely works for some.
Money-Free Zone: I’ve been a Natalie Merchant fan since her days in 10,000 Maniacs in the 1980s – power vocals with an overlay of melancholy. One of my faves by her is Just Can’t Last. With the Maniacs, she kills it on A Campfire Song.
More PF from The Globe
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