Young homebuyers face $100,000 interest hit in Burlington, Hamilton under new mortgage rules

A move to encourage young adults in Burlington and Hamilton to become homebuyers is a double-edged sword.

The federal government’s new mortgage rules will allow all first-time homebuyers and buyers of new builds to have 30-year amortization periods. On top of that, the new measures will also increase the price cap for insured mortgages from $1 million to $1.5 million.

The extension of the amortization period is being hailed as a victory for younger buyers by some industry experts, who also warn the new rules will mean higher interest payments in the end.

“This could be a game changer for younger generations eager to enter the housing market,” said Carrie Lysenko, CEO of Zoocasa, an online real estate company.

“By extending amortization periods and raising the insured mortgage cap, a greater number of Canadians will have the opportunity to buy in more competitive and higher-priced markets like the Greater Toronto and Greater Vancouver areas, thus making homeownership more accessible in regions where it has previously felt out of reach.”

The other side of the coin, however, means buyers will pay more in interest over the extra five years. For instance, a recent Zoocasa analysis showed that the difference in interest paid between a 25-year mortgage and a 30-year mortgage could be upward of $100,000.

Zoocasa broke down what the reforms mean and how they can make homeownership more attainable.

The greatest advantage of a 30-year amortization instead of a 25-year one is that a mortgage that is spread out over a longer period of time will have smaller monthly payments, making the long-term cost of home ownership more manageable.

For example, a homeowner in the Burlington-Hamilton area with a 25-year mortgage on a home priced at the average of $886,999 would pay $3,767 per month, whereas extending the mortgage to 30 years would reduce the monthly payment by $356, bringing it down to $3,411.

In addition, for the first time since 2012, the price cap for insured mortgages is set to rise, increasing from $1 million to $1.5 million. Under the current system, buyers purchasing homes over $1 million must provide a down payment of at least 20 per cent, which means putting down $200,000 or more upfront. This has created a significant barrier in high-demand markets like Hamilton-Burlington.

By raising the insured mortgage cap, the new rule aims to make it easier for buyers to access insured mortgages with smaller down payments, reducing the initial financial burden and potentially opening the market to more first-time homebuyers. With the current $1 million price cap, many buyers are limited to purchasing condos or townhouses. However, with the proposed changes, buyers could broaden their search to include detached homes.