09/23/2024
Viktoriia Lazareva -the mortgage expert explains new rules for first-time homebuyers, and has these helpful tips if you’re getting ready to renew your mortgage
Now that some of the mortgage regulations have been loosened by the federal government, first-time homebuyers might be able to jump into the market.
On Sept. 17, the federal government announced all first-time homebuyers will be able to obtain a 30-year amortization rate, starting Dec. 15. Currently, only first-time buyers purchasing a new build have the option.
Mortgage expert Viktoriia Lazareva explained what the new changes mean for first-timers, plus breaks down details for those getting ready to renew their mortgages in the next year — including a mortgage stress test.
What does a 30-year amortization mean for first-time buyers?
Extending the amortization rate by five years means that mortgages might be more affordable for first-time buyers, saving $50 a month for every $100,000 spent, Viktoriia said
Previously, a 25-year-amortization rate was the highest any homebuyer could go. The amortization rate means how long it will take you to pay off your home.
“I ran numbers for a nice first-time homebuyer couple (recently). Their mortgage was approximately $600,000. A 30-year amortization lowered their payment by approximately $350 (a month).”
And with interest rates improving, someone buying now has a drastically lower monthly payment than someone buying last year, Viktoriia said.
Has there been a change with a down payment rule as well?
There has been no change to this. It is still five per cent down on the first $500,000, and 10 per cent down on anything over $500,000, Viktoriia said.
However, the federal government announced a new limit for an insured mortgage, increasing to $1.49 million — up from $999,999. The wrinkle is that means the minimum down payment for that bigger mortgage is $124,999.
“To qualify for the new maximum with a minimum down payment, and a 30-year amortization, a homebuyer would require a household income of $300,000,” Viktoriia said. “The monthly payment would be $7,500.
“For this reason, we are not expecting first-time home buyers to rush to the market and buy homes that are say $1.3 million to $1.5 million. However, we are expecting to see buyers shifting into buying homes that are in the range of $1 million to $1.1 million.”
Will first-time homebuyers start jumping into the market, now that interest rates are slowly coming down?
“I expect first-time homebuyers to get back into the market,” Viktoriia said. “I suspect that will start in early 2025, once rates are a little lower and these new rules are in effect.”
She also said investors will likely start to get back into the housing market as rates go down.
Home prices are still high, so are we seeing parents getting involved with helping their adult kids — as guarantors or gifting them money?
“Most of the first-time homebuyers that we are helping have the parents helping out,” she said. “Most banks require the parents to be on title though, not as guarantors, which are not on title.
“I find that there is a clear divide between two different parent groups when it comes to helping out their kids. Half of parents are OK with co-signing, but do not want to gift any money while the other half would rather not co-sign and instead just gift their kids whatever money they need.”
According to the Canada Mortgage and Housing Corporation, roughly 2.2 million mortgages will come up for renewal in 2024 and 2025. Will I have to do another stress test at renewal?
“If you are just renewing your mortgage, you do not need to pass a stress test. In fact, you don’t need to provide ay income verification or anything like that.
“If you want to transfer to a new lender and not change the terms of your mortgage, you also do not need to pass a stress test.”
However, if you would like to borrow more money (i.e. “refinance”), then you would need to pass a stress test,” Viktoriia said. “The stress test has been in effect since 2016, so it is nothing new and the most (likely all) would have already passed the stress test when they got their existing mortgage five years ago.”
