What the 30-year mortgage changes mean for consumers

Launches Aug. 1 for default-insured first-time buyers purchasing newly built homes

Despite Wednesday’s jump in U.S. inflation, the Bank of Canada meeting and Canada’s 14-basis point eruption in 5-year bond yields, our leading mortgage rates are still flat versus last week.

Fortunately, our mortgage market isn’t as yield-sensitive as in the United States. There, some of the most competitive rates instantly shot about 15 to 20 basis points higher after yesterday’s scary inflation report.

Financial Post
THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
  • Daily content from Financial Times, the world's leading global business publication.
  • Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.
  • Daily puzzles, including the New York Times Crossword.
SUBSCRIBE TO UNLOCK MORE ARTICLES

Subscribe now to read the latest news in your city and across Canada.

  • Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, Victoria Wells and others.
  • Daily content from Financial Times, the world's leading global business publication.
  • Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
  • National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.
  • Daily puzzles, including the New York Times Crossword.
REGISTER / SIGN IN TO UNLOCK MORE ARTICLES

Create an account or sign in to continue with your reading experience.

  • Access articles from across Canada with one account.
  • Share your thoughts and join the conversation in the comments.
  • Enjoy additional articles per month.
  • Get email updates from your favourite authors.

Sign In or Create an Account

or
View more offers
If you are a Home delivery print subscriber, unlimited online access is included in your subscription. Activate your Online Access Now

Lucky for us, Canada has a bit more leeway until most banks raise borrowing costs. Before fixed-rate increases become widespread, yields would probably have to shoot up at least another 10 to 15 basis points or so. But if you’ve got a mortgage closing before September, get a rate hold anyway.

Big change ahead

The marquee mortgage news of the week is Canada’s re-introduction of 30-year amortizations. They launch on Aug. 1 for default-insured first-time buyers purchasing newly built homes. 

Since 2012, insured mortgages have been limited to 25-year amortizations. The change comes at a time when housing affordability is at record lows.

Here’s the quick and dirty on this policy revival:

  • If you’re a first-time buyer making the minimum five per cent down payment, stretching from a 25- to a 30-year amortization would qualify you for roughly five per cent to 5.5 per cent more home, other things equal. 
  • Alternatively, it could reduce the income required to qualify for a mortgage by over five per cent. These calculations are based on a 4.99 per cent mortgage rate and no other debts.
  • According to Canadian Home Builders’ Association chief executive Kevin Lee, this change is expected to lure more buyers into the market, counteract high interest rates, and support prices, which will stimulate more construction. More building helps address housing’s headline issue: a lack of home supply given excessive immigration.

Separately, the government is also boosting the RRSP Home Buyers’ Plan withdrawal limit for new homebuyers. However, only a small fraction of buyers make use of even the $35,000 limit. 

Price-wise, proponents say the new 30-year insured amortization policy will only juice new-home values by a small single-digit percentage, but that remains to be seen. It’s a good gamble either way, given the feds have yet to make a big enough dent in the supply problem.

What we know for sure, is that the measures announced today will lift homebuyer sentiment, and that typically supports home prices overall.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news . You can follow him on X at @RobMcLister.

Want to know more about the mortgage market? Read Robert McLister’s new weekly column in the Financial Post for the latest trends and details on financing opportunities you won’t want to miss

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters financialpost.com.