The Government of Canada has introduced new mortgage regulations. At the beginning of the year, it was announced that the insured amortization period would be extended to 30 years. However, this change was limited to first-time homebuyers purchasing newly built homes. Although this adjustment may have assisted some individuals in buying their first property, it was quite restrictive. Extending the amortization period to 30 years for insured mortgages can enable individuals to qualify for a mortgage that may have been unattainable with a 25-year amortization. While these mortgages will incur higher costs in insurance premiums and interest throughout the mortgage term, it may prove more advantageous than renting and not reaping any benefits from those payments.
Earlier this week, the government made another update to the regulations. The recent adjustment allows all first-time homebuyers to extend the amortization period to 30 years for an insured mortgage. This alteration enables first-time homebuyers to acquire any property with a 30-year amortization with a minimum down payment. Furthermore, individuals buying a newly constructed home, regardless of being first-time buyers, can take advantage of this modification. The advantages include the possibility of qualifying for a larger mortgage if you are a first-time homebuyer OR purchasing a newly built home. On the downside, selecting a 30-year amortization will result in higher mortgage insurance premiums and significantly increased interest payments throughout the life of the mortgage.
Let me break down the math:
Income: $115,000 Income: $115,000
Debt: $15,000 Credit Card Debt: $15,000 Credit Card
Mortgage Qualification: $500,000 Mortgage Qualification: $537,000
Down payment minimum: $25,000 Down payment Minimum: $28,700
Insurance Premium: $19,000 Insurance Premium: $21,348.60
Monthly payment: $2745.16 Monthly Payment: $2507.15
Interest rate: 4.54% Interest rate: 4.54%
What will this cost you?
$500,000 purchase price
$25,000 down payment
4.54% interest over the life of the mortgage (this would change over the life of the mortgage but for ease of math I kept it at the same amount)
Insurance Premium: $19,000 Insurance Premium: $19,950.00
Total Interest: $329,544.84 Total Interest: $407,622.45
Total Cost: $348,544.84 Total Cost: $427,572.45
As you can see a 30 year amortization would cost you $79,027.61 more. Having said that the payments on the 30 year save you $238.01 per month. If you were to roll that into your monthly payment the interest paid would drop down to $366,039.01. Making the 30 year amortization $37,444.17 more expensive than the 25 year.
Another one of the latest changes involves an increase in the insured mortgage cap. Currently, the maximum purchase price eligible for mortgage insurance is $1,000,000, but this will soon rise to $1,500,000. This adjustment allows buyers to acquire properties valued at up to $1,500,000 with a down payment under 20%.
Furthermore, having more than a 20% down payment on a $1,500,000 property will now qualify you for more favorable interest rates. Presently, properties exceeding $1,000,000 are subject to uninsurable interest rates. However, once the new insured mortgage cap comes into effect, you will benefit from insurable interest rates, which typically are approximately 0.30% lower than uninsurable rates offered by the same lender.
We can expect these changes to take effect December 15, 2024.
*Disclaimer: The mortgage calculations provided in this blog are for illustrational purposes only and are intended to give you a general idea of the differences between a 25 year amortization and a 30 year amortization. The results are estimates and do not constitute financial advise. Actual mortgage rates, terms and conditions vary. For personalized advice and to get accurate mortgage options tailored to your needs, please reach out to me.
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