The Federal Government announced in September that, in addition to the new 30-year amortization option for first-time homebuyers of new builds (which took effect August 1st), they will also extend this option to first-time buyers of resale homes and all buyers of new builds, who take out an insured mortgage. The new rules, set to take effect on December 15th, also include reducing the down payment for homes between $1 million and $1.5 million to less than 20 percent. For high-earning first-time buyers on the edge of entering the market, these changes could give them the boost they need to become homeowners.
While the government aims to create more demand for newly built homes and provide first-time homebuyers with more options, some experts feel the move will further drive up home prices. Developers still struggle to initiate new building projects due to high interest rates and construction costs. And with these new rules, the housing shortage could become even more pronounced.
The Canadian Home Builders’ Association shared their thoughts shortly after the announcement that boosting household borrowing power could cause an “inflationary effect” and drive up real estate costs where demand exceeds supply. The result could allow first-time buyers to take on more debt but do nothing to help affordability.
To gain further clarity on this issue, we asked two local realtors to share their thoughts.
Brenda McKinley from Realty World Legacy in Burlington believes the new rules will make it easier for buyers to get into the market and has seen mortgage brokers become busier as buyers work to get pre-approved ahead of the December changes. “This is opening doors for so many new buyers,” Brenda says. “We are seeing people become approved for mortgages who previously couldn’t.”
Recognizing that a more extended amortization period could prolong repayment, she explained that “historically, new buyers are tight for the first couple of years, but as their income increases, they can (and should) pay more down on their principal.”
The new options are available for buyers in higher income brackets; however, lower- income buyers still rely on family to help them with down payments. “Buyers should buy as soon as they can afford a home,” Brenda advises. “I would rather spend $2,500 a month on a mortgage than rent. You can’t get growth in equity if you don’t have home ownership.”
Shae Invidiata of RE/MAX Aboutowne Realty shares the vision for building equity but cautions that first-time buyers should be educated about the risks. “It’s part of home ownership to build equity,” Shae says. “But by prolonging amortization, it will take longer to build up that equity and homeowners will be paying more interest over time.” She explained that most people are still struggling with the cost of living, which hasn’t adjusted despite recent interest rate drops by the Bank of Canada.
“We still have an inflation problem and are not out of the woods yet,” explains Shae. “Rates could go up again, and buyers need to ensure they can comfortably afford their payments if that happens. Comfortably, not stretched.”
Shae’s best advice is to consult a realtor who will tell you what you need to know, not just what you want to hear. Buyers approved for a $2 million dollar mortgage, for example, should consider buying between $1.3 and $1.6 million to build equity and be able to afford their home for the long term, should rates go up or they lose their job. She advises obtaining proper representation, sitting down and crunching the numbers. She says, “The phrase “living within your means” has more relevance now than ever.”
BRENDA MCKINLEY, BROKER OF RECORD
Realty World Legacy
289.714.3878 | brenda@realtyworldlegacy.ca
SHAE INVIDIATA, SALES REPRESENTATIVE
RE/MAX Aboutowne Realty
905.339.3444 | shae@invidiata.com
