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How are my kids going to afford a home?  If you are like me, then parents of millennials may have asked themselves this same question. With a national average home price of $375,000 (excluding Vancouver and Toronto), a stress test implemented in 2016 which makes insured buyers qualify for a mortgage payment at higher interest rates and tightening qualification criteria at Genworth, Canada’s largest default insurer, are our kids ever going to be able to move out of our basements and into homes of their own?

Well, those who think the government went overboard on mortgage tightening may have a glimmer of hope. Recently the federal government is looking to make home-buying more affordable for millennials – and one potential solution would have a noticeable impact on mortgage payments.  It was reported in the Globe and Mail that Ottawa may be considering a move in policy that would allow first-time homebuyers to obtain 30-year insured mortgages, up from the current 25-year limit. Finance Minister Bill Morneau stated in January there are “multiple things we’re looking at in order to think about how we can help in that regard,” referring to home-affordability issues for young Canadians.  Both the Canadian Home Builders’ Association and government officials are showing particular interest in the 30-year amortization proposal.

 This policy change would certainly make mortgage payments lower, but by how much? According to Ratehub.com here are the numbers:

Monthly mortgage payments for homes at three price points.

• $472,000: roughly the national average home price in December, according to the Canadian Real Estate Association;
  • Ranging from a 5%, 10%, or 15% downpayment you can expect between $211 to $239 per month with a 30-year amortization

• $375,000: roughly the national average home price in December, after excluding Greater Vancouver and the Greater Toronto Area; 
  • Ranging from a 5%, 10%, or 15% downpayment you can expect between $168 to $189 per month with a 30-year amortization

• $750,180: the average home price in the Greater Toronto Area in December, according to the Toronto Real Estate Board.
  • Ranging from a 5%, 10%, or 15% downpayment you can expect between $335 to $372 per month with a 30-year amortization

 All scenarios assume a five-year fixed mortgage rate of 3.74 per cent, a common rate on offer by Canada’s big banks.

 So, there are the numbers.  Is this enough to help our kids qualify for insured mortgages? I guess we will see.  There are some drawbacks to the 30-year amortization to make our millennials aware of, notably, that the total interest paid will be greater than with a shorter 25-year term. To end on a positive note, at least our government is recognizing that there is potential issues facing our millennial sons and daughters when it comes to home ownership.  Is this change in policy enough?  I would love to hear your feedback.

Shane Lassey

MaxWell Polaris