The Canadian government introduced 30-year mortgages last month in an effort to make owning a home easier for younger Canadians.
“For every young Canadian who wants to own a home of their own, we want them to be able to qualify for a mortgage and afford their first home. One of the biggest hurdles to homeownership for younger Canadians is qualifying for a mortgage and affording the monthly payments,” said Chrystia Freeland, Minister of Finance.
“That is why, starting Aug. 1, first-time buyers of new builds can reduce their monthly payments with up to 30-year mortgages.”
The Meridian Source contacted Servus Credit Union to determine whether this would help alleviate the housing crisis. According to James Thomas, Servus’ vice president of retail banking, it won’t help much.
“The use case for the 30-year-mortgage group is minimal,” said Thomas. “Most first-time homebuyers lack the financial means to build a new home, and therefore, the impact on the housing crisis is low.”
Below, Servus provided the requirements to apply for a 30-year-mortgage, according to the new regulations.
As with all mortgages, these have advantages and disadvantages. The option, if you qualify, helps purchasers reduce their debt-to-income ratio. Payments are also lower as you have financed the purchase for over 30 years.
“It will increase the amount of interest paid on the mortgage due to the extended
amortization,” said Thomas.
“Equity on the home will be built slower than a 25-year-mortgage home …and can lead to higher mortgage insurance premiums.”
In some cases, those mortgages down the road are convertible to different lines of credit; Servus works with each case to figure out what’s best for the customer.
“Servus members have the option to prepay and lower the mortgage balance,” said Thomas.
“If a member has built equity, they also have the option to convert the mortgage to a flexline (home equity line of credit) for flexibility in re-advancing future borrowing.”
If you think this type of mortgage is right for you, you are encouraged to reach out to your financial institution or broker for further advice.
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