Finance Minister Chrystia Freeland unveiled a list of measures on Thursday to help Canadians afford mortgages and buy their first homes. Freeland said that the 2024 federal budget, to be tabled on Tue. April 16, will include enhancements to the Home Buyers’ Plan and the Canadian Mortgage Charter, which will help put homeownership back within reach.
Here are the major enhancements being made:
Increasing the Home Buyers’ Plan limit
For Canadians saving up for a downpayment on their first home, the 2024 budget will propose increasing the Home Buyers’ Plan limit from $35,000 to $60,000. This plan is a federal program that lets Canadians withdraw from their RRSP to buy or build a qualifying home, so increasing the limit means that first-time home buyers can use the tax benefits of RRSP contributions to save up to $25,000 more for their downpayment
“This, plus the Tax-Free First Home Savings Account, can be combined, which will give younger Canadians more tools to save what is actually needed,” Freeland said at a press conference on Thursday. The Tax-Free First Home Savings Account (FHSA) allows Canadians to contribute up to $8,000 per year—up to a lifetime limit of $40,000—toward their first downpayment. Freeland said that more than 750,000 Canadians have opened an FHSA since it launched last year.
30-year mortgage amortization period for first-time home buyers
The government will allow 30-year mortgage amortizations for first-time home buyers purchasing newly built homes, effective August 1, 2024. Extending the amortization limit for insured mortgages by five years for first-time buyers purchasing new builds should, in theory, help more young Canadians afford a monthly mortgage payment and encourage new supply.
“That translates to lower monthly payments, so more younger Canadians can afford to pay that monthly mortgage on a new home,” Freeland said.
Reports indicate that a 30-year mortgage may offer lower monthly payments and more flexibility than shorter mortgages, but might also cost more over the loan’s lifetime.
Changes to the Canadian Mortgage Charter
Where appropriate, permanent amortization relief will be made available to protect existing homeowners who meet specific eligibility criteria. As a mortgage relief measure, banks might offer to extend the amortization period (the length of time it takes to pay the mortgage in full). Freeland noted that banks/lenders will now have to contact borrowers up to 24 months in advance of a homeowner’s mortgage renewal to discuss options.
In a press release, the government notes that this relief means that “eligible homeowners can reduce their monthly mortgage payment to a number they can afford, for as long as they need to” and that, thanks to the relief, “homeowners who are most at risk are now better positioned to stay in their home and retain control over these important life decisions”.
While it’s true that amortization relief can lower monthly mortgage payments by stretching out the length of time a homeowner has to repay their mortgage, more interest will be paid over time.
Home Buyers’ Plan grace period extension
The feds will announce that Canadians who withdraw from their Home Buyers’ Plan between January 1, 2022, and December 31, 2025, will see their repayment grace period extended by three years. So, first-time home buyers will now have up to five years before they need to start repayments.
“We have a plan to build a Canada that works better for you, where you can get ahead, where your hard work pays off, and where you can buy a home,” Freeland said in a statement regarding the housing affordability measures.
The announcement couldn’t have come at a more perfect time. A new CIBC poll finds that 76% of Canadians who don’t own property feel that entry to the housing market is out of reach, but 56% are still holding on to the goal of one day owning their own home. Also, a recent study shows that major Canadian cities, like Vancouver and Toronto, are less affordable to live in compared to other major cities, including New York, Miami, Calgary, Winnipeg, and Edmonton.