What 30-year amortizations mean for mortgage consumers
Despite Wednesday’s jump in U.S. inflation, the Bank of Canada meeting and Canada’s 14-basis point eruption in 5-year bond yields, our leading mortgage rates are still flat versus last week.
Fortunately, our mortgage market isn’t as yield-sensitive as in the United States. There, some of the most competitive rates instantly shot about 15 to 20 basis points higher after yesterday’s scary inflation report.
Lucky for us, Canada has a bit more leeway until most banks raise borrowing costs. Before fixed-rate increases become widespread, yields would probably have to shoot up at least another 10 to 15 basis points or so. But if you’ve got a mortgage closing before September, get a rate hold anyway.
The marquee mortgage news of the week is Canada’s re-introduction of 30-year amortizations. They launch on Aug. 1 for default-insured first-time buyers purchasing newly built homes.
Since 2012, insured mortgages have been limited to 25-year amortizations. The change comes at a time when housing affordability is at record lows.
Here’s the quick and dirty on this policy revival:
Separately, the government is also boosting the RRSP Home Buyers’ Plan withdrawal limit for new homebuyers. However, only a small fraction of buyers make use of even the $35,000 limit.
Price-wise, proponents say the new 30-year insured amortization policy will only juice new-home values by a small single-digit percentage, but that remains to be seen. It’s a good gamble either way, given the feds have yet to make a big enough dent in the supply problem.
What we know for sure, is that the measures announced today will lift homebuyer sentiment, and that typically supports home prices overall.
Robert McLister is a mortgage strategist, interest rate
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