30-Year Mortgages: What You Need to Know

On Monday, the federal government announced new measures regarding mortgage loans to help first-time buyers afford a home. Remember that in 2012, the Conservative government reduced the maximum amortization period from 30 to 25 years, in order to prevent real estate overheating in the country. Today, the Liberals are doing the opposite by reducing the amortization to 30 years. Here’s what you need to know.

• Also read – 30-year mortgages: new rules will bring new buyers to Montreal

• Also read: Lebourgneuf Mega Centre sold for $66.5 million

What are the changes?

– All first-time buyers, whether they are purchasing a new or existing property, will be able to spread their loan over 30 years, instead of the current maximum of 25 years. This will apply even if their down payment is less than 20% and their loan must be insured by the Canada Mortgage and Housing Corporation (CMHC).

– The measure also applies to any buyer of a new residence, regardless of whether it is their first real estate purchase or not.

– Ottawa increases the ceiling for insured mortgages, i.e. with a down payment of less than 20% of the purchase price, to $1.5 million (it was previously set at $1 million).

When will the changes take effect?

The 30-year mortgage spread and the increase in the insured mortgage loan ceiling will be in effect from December 15, 2024. The 1^er In August, access to 30-year insured mortgages was extended to a first group of people, namely first-time buyers purchasing a new property.

Who is targeted by these measures?

Especially first-time buyers, for whom the measure applies to both new and existing homes. Buyers who have already owned a property will also be able to benefit from it, but only if they buy a new property.

In its announcement, Ottawa stressed that the measure was primarily aimed at helping young people, for whom the high cost of mortgage payments is an obstacle to buying a first home.

What impact will this have on mortgage payments?

On a five-year loan for a $400,000 mortgage at a rate of 4.49% with a 25-year amortization, the monthly payment is $2,211.67.

If the mortgage term is extended to 30 years, the payment becomes $2,014.54. So a saving of $197.13 per month.

However, by extending the mortgage term in this way, the buyer will end up paying nearly $2,000 more in interest to the bank over the five-year term of the loan. And much more over the entire 30-year term of the mortgage.

Which properties are affected?

Unless otherwise indicated, all types of residences are affected by these new rules, whether houses, condos or rental properties.

What impact could the increase in the ceiling for insured mortgage loans to $1.5 million have on the Quebec market?

This change could greatly stimulate demand for properties on the Island of Montreal, according to brokers. Until now, buyers who wanted to purchase a property worth $1 million or more had to make a 20% down payment. Now, they will be able to buy up to a value of $1.5 million without having to make a 20% down payment. Their loan will be insured by the CMHC.

How much mortgage loan can CMHC insure in total?

CMHC must meet its regulatory limits of $750 billion for total insurance in force, as set out in the National Housing Act. As of June 30, 2024, its insurance contracts in force total $424 billion.