The Federal Government Makes It Easier for First-Time Homebuyers with Changes to RRSP Home Buyers’ Plan and Mortgage Amortization Rules
The federal government has announced a series of measures designed to make it easier for first-time homebuyers to enter the housing market. These changes include modifications to the Home Buyers’ Plan (HBP) and amortization periods on some mortgages.
Finance Minister Chrystia Freeland unveiled the changes on Thursday, marking the latest housing-focused announcement before the federal budget is tabled on April 16, 2024.
“Faced with a shortage of housing options and increasingly high rents and home prices, many younger Canadians feel that the dream of homeownership is just that, a dream,” Freeland said in Toronto. “Our government is changing that. We want homeownership to be a reality for younger Canadians.”
Changes to the Home Buyers’ Plan (HBP):
- Increased Withdrawal Limit: The maximum withdrawal limit is increased from $35,000 to $60,000, allowing first-time homebuyers to access more funds from their Registered Retirement Savings Plan (RRSP) for their down payment.
- Shorter Repayment Period: The repayment period for HBP withdrawals has been reduced from 15 years to 10 years.
- Extended Repayment Grace Period: First-time homebuyers who withdraw funds from the HBP between 2022 and 2025 will benefit from a longer grace period before repayments begin. Previously, repayments started after two years, but this has been extended to five years.
Extended Amortization for Some Mortgages:
The government is also allowing some first-time homebuyers to stretch their mortgage amortization period to 30 years, making monthly payments more manageable. This change applies specifically to insured mortgages on newly built properties, starting on August 1, 2024.
While extending amortization reduces monthly payments, it’s important to note that the total interest paid over the life of the mortgage will increase. Additionally, these changes only apply to insured mortgages, which are available to buyers with a down payment of less than 20% or for properties valued under $1 million.
Market Reaction and Potential Impact:
- Limited Benefits in Hot Markets: Some experts believe the changes might not significantly help buyers in Canada’s most expensive housing markets, where many new builds exceed the $1 million threshold and require uninsured mortgages.
- Potential Increase in Construction: The Canadian Home Builders’ Association (CHBA) applauded the extended amortization, believing it will encourage construction by making it easier for first-time buyers to qualify for mortgages.
Other Measures:
- Amendments to the Canada Mortgage and Housing Corporation (CMHC): The government announced plans to amend the CMHC to offer “permanent” amortization relief to struggling homeowners. Eligible homeowners will be able to apply for extended amortization periods to make their monthly payments more manageable. Specific details regarding eligibility criteria haven’t been released yet.
- First Home Savings Accounts (FHSAs): Freeland also noted that over 750,000 FHSA accounts have been opened across Canada, allowing young Canadians to save up to $40,000 tax-free for a down payment.
These announcements come amidst a national poll by CIBC, revealing that 76% of non-homeowners feel buying their first property is “out of reach.” The Liberal government has been actively promoting its upcoming budget’s housing initiatives across the country in recent weeks.
Important Takeaways:
- Increased HBP withdrawal limit: $60,000 (from $35,000)
- Shorter HBP repayment period: 10 years (from 15 years)
- Mandatory monthly HBP repayment
- Extended 30-year amortization for qualified first-time buyers on new builds with insured mortgages
- CMHC amendments for permanent amortization relief for struggling homeowners
- Over 750,000 FHSA accounts opened
These changes will significantly impact the housing market and first-time homebuyers in Canada. It’s crucial for potential buyers to stay informed and prepare for entering the housing market.
