New loan rules to expand insurance mortgages from 25 to 30 years are set to take effect next month to help first homebuyers into the market.
By increasing the repayment period five years, first-time buyers will face lower monthly mortgage bills.
However, if the loan were to go to full-term, they would pay more in interest because of the five-year extension.
An average mortgage repayment on a loan of $600,000 might drop $300 a month. But the outstanding interest over three decades could be $20,000 or more.
As any property professional would testify, it’s desirable to pay off a mortgage as quickly as possible in normal circumstances. However, the new 30-year amortisation period will lower the financial entry barrier.
The price cap for taking out insured mortgages will also increase, moving from $1 million to $1.5 million, which acknowledged the increasing value of property across Canada.
The new rules are also designed for those purchasing newly-constructed homes or rescheduling their mortgage as part of an upgrade transaction.
They have been described in the Global & Mail as “some of the most significant mortgage policy reforms that we have seen in many years”.
Deputy Prime Minister and Minister of Finance Chrystia Freeland said the move would “put the dream of home ownership in reach for more young Canadians”.