1) Canadian home prices rose sharply in March
2) Increase the RRSP limit for first-time home buyers
3) The start of the repayment period is postponed to 5 years
4) Extension of the amortization period of housing loans to 30 years, etc
One of the biggest pressures facing Canadians right now is housing, and recently, the Canadian federal government announced a series of measures to make it easier for first-time buyers to access the housing market.
1. Canadian house prices rose sharply in March
According to the latest monthly report from the Canadian Real Estate Association (CREA), the average price of a home in Canada has risen significantly this year.
In March 2024, the national average home price rose to $698,530, up 2% from March 2023. This compares to an average home price of $659,395 CAD in January 2024, up 7.6% from January 2023. From January to March 2024, home prices increased by $39,135.
In terms of interest rates, the Bank of Canada recently announced that it will keep its benchmark interest rate unchanged at 5%. The bank's governor, Macklem, expressed optimism, suggesting that the Bank of Canada may cut interest rates at the next June interest rate decision-making meeting.
Faced with a housing shortage and increasingly high rents and house prices, many young Canadians think owning a home is just a dream.
Second, the Canadian government announced new rules for home loans
To make it easier for young people to buy a home, the Canadian government has announced a series of reforms:
1. Increase the RRSP withdrawal limit to 60,000
The Canadian government says that the first step to getting your first keys is to save money for a down payment, and this step is also one of the biggest barriers to owning a home. That's why last spring the Canadian government launched the First Home Savings Account (FHSA), which allows Canadians to deposit up to $40,000 to buy their first home. Contributions are tax-deductible like RRSPs, and withdrawals for the purchase of your first home are tax-exempt like TFSAs. Tax-free when you go in, tax-free when you go out.
Just one year after its launch, more than 750,000 First Home Savings Accounts (FHSAs) have been opened across Canada to date.
Another program that the Canadian government has created to help Canadians raise a down payment is the Home Buyer Program. It allows Canadians to withdraw funds from their RRSP to buy their first home. Like a tax-free first home savings account, an RRSP is a great tool for saving for a down payment because contributions are tax-deductible and any income earned in an RRSP is tax-deductible.
You can now withdraw up to $35,000 from your RRSP for a down payment. However, in many cities in Canada, this is not enough. Younger Canadians need to save more money for a longer period of time before they can make their first down payment.
So, to help Canadians buy their first home, Canada's Treasurer announced an increase in the homebuyer program withdrawal limit from $35,000 to $60,000 from April 16 this year.
This can be combined with a tax-free first home savings account, which will give young Canadians more tools to save the money they actually need for a down payment.
2. The start of repayment period is postponed to 5 years
The Home Buyers' Plan allows individuals to withdraw money from an RRSP tax-deductible as long as it is returned to the account within 15 years.
Canada's finance minister has said that the repayment period is deferred, and now Canadians are given five years to start repaying this amount, instead of a two-year period.
That is, between January 1, 2022 and December 31, 2025, the repayment grace period for Canadians who withdraw from the Homebuyer Program will be extended by three years.
3. The amortization period of the mortgage has been extended to 30 years
Once you've saved enough for your first down payment, the next step in owning a home is to get a mortgage. An important part of qualifying for a mortgage is making sure you're able to pay the monthly fees that come with it. For many young Canadians, these costs are a significant barrier to homeownership.
First-time home buyers buying a newly built home are allowed to amortize their insured mortgage over 30 years as of August 1 of this year. Of course, this includes apartments and townhouses. Extending the amortization period from the traditional 25 years to 30 years will reduce monthly payments, so more young Canadians can afford to pay their monthly mortgage on a new home.
4. Where appropriate, permanent amortization reductions will be provided
The Government of Canada has also announced changes to the Canada Mortgage Charter, which include requiring financial institutions to provide permanent amortization relief to protect existing homeowners who meet certain eligibility criteria.
For example, let's say a homeowner with 25-year mortgage insurance is facing financial difficulties. Last year, the homeowner worked with the bank to temporarily extend the mortgage amortization term to 35 years to lower the monthly mortgage payment. Now, with the strengthening of the Canada Mortgage Charter, this extension can be made permanent depending on the homeowner's specific circumstances so that their monthly costs can be kept low for as long as they need to.
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