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Canada to allow first-time home buyers to pay off mortgage in 30 years

Canada will allow some first-time home buyers to pay off their mortgages over 30 years instead of 25 years for newly built homes, starting on Aug. 1, Finance Minister Chrystia Freeland said on Thursday.The move, to be proposed in the upcoming federal budget, will help younger consumers afford a monthly mortgage payment and encourage new supply, Freeland told reporters in Toronto.

In Canada, home loans comes with an interest rate that is subject to a renewal of terms every three or five years within the set amortization period, unlike in the U.S. where a fixed-rate mortgage carries an interest rate that applies to the entire life of the original loan.

With sharp hikes in interest rates since 2022 adding to debt burdens, Canadian mortgage holders have had to either extend their mortgage period to keep payments steady or increase the amount of monthly payments.

At the same time, a supply-demand mismatch has added to challenges for first-time buyers while big banks are being more cautious with their lending practices after steadily increasing their loan loss provisions to cover for unpaid loans and mortgages.

“By extending amortization, monthly mortgage payments will be more affordable for young Canadians who want that first home of their own,” Freeland said.

 The budget will also propose to increase the withdrawal limit of Home Buyers’ Plan, which allows Canadians to take money out of a registered retirement savings plan, from C$35,000 to C$60,000.

“What we are announcing today will make a down-payment much more attainable for younger Canadians,” Freeland added.

However, many argued that while extending amortization could lower monthly payments, it could push up home prices, offsetting affordablity gains.

The policy change would also transfer wealth from younger Canadians and newcomers to older, high-wealth Canadians, Rob Gillezeau, an economics professor at the at University of Toronto, said on X, formerly Twitter.”This is part of a long series of federal policy changes since 2015 that have emphasized political messaging on housing while actually making the housing crisis worse by boosting demand.”

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