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Effective August 1, 2024, new mortgage rules will allow First Time Home Buyers to opt for up to a 30-year amortization period for high ratio mortgages (mortgages where the principal amount is more than 80% of the property’s value, or in simpler terms, where the down payment is less than 20% of the property’s value). This change was announced as part of Budget 2024 by the Federal Government and has now become effective. Before this change being effective, the amortization period for a high ratio mortgage could only be 25 years or less. This will help First Time Home Buyers in lowering their regular mortgage payments.

As per the Government’s website, below are the criteria that need to be met in order for a First Time Home Buyer to benefit from the new change.

• First-Time Homebuyer: At least one of the borrowers on an application must be a first-time homebuyer. To be considered a first-time homebuyer, a borrower must meet one of the following criteria:
  • The borrower has never purchased a home before;
  • In the last 4 years, the borrower has not occupied a home as a principal place of residence that either they themselves or their current spouse or common-law partner owned; or,
• Newly Constructed Home: The property that the borrower is purchasing must be a newly constructed home. To be considered a newly constructed home, the new home must not have been previously occupied for residential purposes. This requirement is not intended to exclude newly constructed condominiums where there has been an interim occupancy period.
• Effective Date: This measure will be available for mortgage insurance applications that lenders submit to mortgage insurers on or after August 1, 2024. The government expects lenders will begin offering 30-year mortgages to eligible first time buyers as soon as August 1.
  • This measure will only apply to high-ratio mortgages on owner-occupied properties.
  • All other eligibility criteria for government-guaranteed mortgage insurance will remain in place.

It sounds as if this is going to be a silver bullet, but is this really going to have a huge impact? My answer to that will be… it depends. Largely upon the location of the property. If we talk about cities such as Toronto, Vancouver, Montreal, etc., it will be difficult to search for a property after adding all those filters – new build, purchase price less than 1 million, and deposits required are less than 20%. Most of the new build properties, especially in the GTA, require deposits of 20% or more. In which case, a First Time Home Buyer will not be able to benefit from this policy. If we talk about places which are less expensive, then a First Time Home Buyer might be able to benefit from the change.

Another factor that needs to be highlighted with a First Time Home Buyer is the adjustments that are usually charged in case of new build transactions. These adjustments are usually included in the Agreement of Purchase and Sale and are charged in addition to the purchase price. Some examples of these adjustments are meter installation charges, Tarion enrolment fee, development levies, etc. For more information on such adjustments, we invite you to read our blog What to Expect When Buying a New-Build: Builder “Hidden” Fees on Closing (Part 1). Having to budget for these adjustments in addition to the minimum downpayment and other closing costs, the option to proceed with this policy might be less attractive to a First Time Home Buyer, considering these adjustments can be significant.

While it may not be the perfect solution, it will be of help to some First Time Home Buyers. This might also motivate some builders to offer special incentives for First Time Home Buyers such as different deposit structures, capped closing costs, etc.

If this policy also applied to resale properties, it would have been a silver bullet!

As a First Time Home Buyer, the home buying process can seem complex and overwhelming. We regularly assist First Time Home Buyers to complete their transactions seamlessly. We are here to answer all your questions regarding your real estate transactions. Please feel free to reach out to our office at (905) 270-6660 or by email at info@kormans.ca.

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Yashkaran Singh is an Associate Lawyer at Kormans LLP. You can reach Yashkaran here: ysingh@kormans.ca.

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