Category: Blogs,Mortgage Tips & Advice

Exploring the First-Time Home Buyers:

New 30-Year Amortization Option 🏡 

Effective August 1st, 2024, the Department of Finance has introduced a new option for first-time home buyers (FTHB) purchasing newly built properties: a 30-year amortization for insured mortgages. 📅

Let’s start with who is eligible for this program 🔍

Profile of a First-Time Homebuyer
* At least one borrower on the application must be a first-time homebuyer.📝
* A first-time borrower is defined as a borrower who meets one of the following criteria:
* They haven’t purchased a home before.🏠
* They have not occupied a home as a principal place of residence that they or their current spouse or common-law partner owned in the last 4 years.📅
* They have recently experienced a breakdown of a marriage or common-law partnership.💔
* Individuals who are Canadian citizens, permanent residents of Canada, or non-permanent residents who are legally authorized to work in Canada.🍁

Type of Properties Eligible
* The property must be a newly built home that has not been previously occupied for residential purposes. 🏘️ This applies to newly built homes, condominiums, and manufactured homes.
* Properties with 1 to 4 units.🏢
* Properties must be owner-occupied or partially owner-occupied.🏡
* The maximum purchase price or as-improved property value must be below $1,000,000.💲
* The property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The property must also have year-round access.🗺️

Lending Criteria
* This product is available for high-ratio mortgage loans (greater than 80% loan-to-value ratio) on owner-occupied properties, in other words, anyone who is putting in less than 20% down payment.💰
* Since this is an insured mortgage, there will be default insurance added to the mortgage amount as well as a surcharge of 0.20% on the insurer premium should you wish to exceed the 25-year amortization period.🔒

Let’s look at the numbers 
Let’s review a scenario along with the pros and cons of this type of program.📊

$500,000 purchase 💵
* $25,000 down payment 5% 💸
* $19,000 default insurance 4% 🛡️
* $494,000 new mortgage amount with default insurance 🏦
* 5% fixed rate 📈

**25-year amortization** 📆
* $2,873.13 monthly payment 💵
* $861,938.50 total payments made over 25 years 💰
* $367,938.50 total interest payments over 25 years 💸

**30-year amortization** 📆
* $2,636.42 monthly payment 💵
* $949,115.50 total payments made over 30 years 💰
* $455,115.50 total interest payments over 30-years 💸

To save $236.71 per month today, it can cost you $87,177 in interest over the life of your mortgage. 📊

Final Thoughts on This Product

This is a great product if you want to get into the housing market now and you need the extended amortization to qualify. The 30-year amortization will keep the mortgage payments lower, thus making it more affordable on a month-to-month basis. This program’s downfall is that it’s only for newly built homes, so keep that in mind. 🏡

Long term, taking a 30-year amortization means you will be paying significantly more interest over time, and so if you decide to take this product, I would encourage you to accelerate your payments and when you come up for renewal in five years, think about re-amortizing back to where you would have been if you took a 25-year amortization, of course, if life offers you that opportunity. ⏳

If you want to know more about this program or know someone who could benefit from this information, please share or connect with us using the link below 🌐.

Talk soon,

Ana

Mortgages can be complicated; we are here to help you make “cents” of it.

We focus on Mortgage Solutions, Period!

To learn more connect with Ana Cruz 905.870.0513 or email at ana@askanacruz.ca