The federal government has announced that first-time and developer homebuyers will be allowed a 30-year amortization period on insured mortgages (price up to $1 million and down payment less than 20%).

Finance Minister Chrystia Freeland said the initiative will take effect on August 1, and also announced that the government will increase the amount first-time homebuyers can take from RRSPs to buy a home from $35,000 to $60,000. The change will come into effect as early as April 16, when the government releases a budget that is expected to focus on housing.

With housing becoming increasingly unaffordable for many young Canadians and first-time buyers, longer amortization periods have been touted as a possible solution by mortgage market participants in recent times.

In early March, the government announced it would end the First-Time Home Buyer Incentive, a home equity program that was intended to ease the burden of saving for a down payment but has found little traction in the country’s most expensive markets.

Freeland also said the government would change mortgage lending rules to allow people struggling to pay their monthly home payments to extend their repayment term to 35 years.

Robert Asselin, a former Liberal economic adviser and senior vice-president of policy at the Business Council of Canada, warned that the measures could serve to increase demand for new homes at a time when record levels of construction are already lagging behind and governments at all levels are trying to boost supply.

“I think it’s a little bit counterintuitive,” Asselin said. The maximum amortization on insured mortgages is currently 25 years. The introduced increase to 30 years will allow the average family purchasing their first home from a developer to qualify for 30-40 thousand more when receiving a mortgage and, accordingly, to afford slightly more expensive real estate.

Prepared by Olga Balaur