Navigating your clients through change to assist with homeownership goals
Recent changes in the housing market present exciting opportunities for homebuyers. As a realtor, your role is crucial in guiding clients through these updates, helping them build effective plans to achieve their homeownership goals by having them reach out to a mortgage broker to see what they are able to afford.
Knowing these new rules and guidelines will help with strategy and future goals of climbing the “real estate ladder.”
Expanded amortizations for first-time homebuyers
Starting December 15, first-time homebuyers will have access to 30-year amortizations. This change can benefit your clients in two significant ways:
1. Lower income requirement. By extending the amortization period, the income required to qualify for a home purchase decreases. This means more clients can meet the necessary criteria.
2. Reduced monthly payments. Clients will experience a decrease in their monthly payments, making homeownership more financially manageable. For instance, on a $600,000 purchase, the monthly payment could drop by approximately $250, providing greater flexibility in budgeting.
Increased insured mortgage cap to $1.5 million
For clients with high incomes but difficulties saving for a down payment, the increase in the insured mortgage cap to $1.5 million can accelerate their path to homeownership. Previously, purchasing a $1.4 million home required a down payment of $280,000. Now, as of December, clients can potentially purchase the same property with a down payment of about $115,000 — a savings of $165,000.00 in upfront requirements.
This change is also advantageous for “right-sizers” looking to downsize. It allows them to allocate more funds from the sale of their larger home toward retirement, as they can put less down on a new, smaller property. However, clients should keep in mind that closing costs, typically around 3.0 per cent of the purchase price, need to be accounted for in each scenario.
For a $600,000 purchase price, anticipate that clients will need an annual income of approximately $150,000 to meet today’s stress-test requirements.
Switching lenders at renewal: A business opportunity
While you may not initially think about how switching lenders can benefit your business, it’s essential to understand that mortgages encompass more than just interest rates. The Canadian Mortgage Charter now allows insured mortgage holders to switch lenders at renewal without undergoing a stress test. This change opens up opportunities for borrowers to shop around for better rates and terms, potentially saving them thousands of dollars.
Encourage your clients to consider lenders that don’t adhere to posted rates. This strategy can significantly reduce Interest Rate Differential (IRD) penalties.
Case in point
For example, let’s compare a $1 million mortgage with three years left on a five-year term at a 5.0 per cent interest rate:
| Big bank | Monoline lender | |
| Original rate | 5% | 5% |
| Current rate | 3.5% | 3.5% |
| IRD penalty calculation | (5% – posted 2%) x 3 years | (5% – 3.5%) x 3 years |
| Total IRD penalty | $55,000 | $30,000 |
By choosing a monoline lender (provided qualifications are met), your client could save $25,000 in IRD penalties, allowing them to manage financial changes better and seize new opportunities.
Tax-efficient savings strategies
As well, two important tax-efficient savings methods have emerged that can empower your clients on their journey to homeownership:
1. RRSP withdrawal limit increase. The amount that can be withdrawn from an RRSP has increased from $35,000 to $60,000 per borrower. This change provides additional funds for clients to put toward their down payments.
2. First-time home saver account. Introduced in 2023, this account allows clients to save $8,000 per year in contribution room, which reduces their taxable income. Unlike RRSP withdrawals, funds from this account do not need to be repaid and any gains earned within it are tax-free. This account, however, has a sunset clause in 2028, making it vital for clients to act quickly to maximize its benefits.
These recent changes create valuable opportunities for your clients. By understanding the implications of expanded amortizations, increased mortgage caps, flexible lender options and tax-efficient savings strategies, you can help them make informed decisions on their path to homeownership.
Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.
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