Deputy Prime Minister/Finance Minister Chrystia Freeland announced a number of new housing affordability measures on April 11, 2024, with the intention of assisting first-time buyers and current homeowners for property ownership.
Newcomers to Canada may be interested in learning whether they are eligible for any of the housing affordability measures that were recently announced, given the federal restrictions on foreign property purchasers that were implemented last year (more on that later).
This article delineates the ways in which policies that implement extended mortgage terms and increased Canadian RRSP withdrawal limits can be advantageous to migrants to Canada, thereby simplifying the process of purchasing their first property.
Additionally, we offer a comprehensive explanation of the implications of these modifications and provide guidance on how transitory residents, including international students and foreign laborers, can adopt them.
Comprehending the limitations on foreign property buyers in Canada
The Prohibition on the Purchase of Residential Property by Non-Canadians Act was implemented by the Canadian government on January 1, 2023.
This government policy, which was recently extended until January 1, 2027, was implemented to prevent “non-Canadians*… from purchasing residential property, specifically buildings with three or fewer dwelling units, including semi-detached houses and condominium units.”
*Non-Canadians are specified as “individuals who are not Canadian citizens or permanent residents.”
Non-Canadians, including transitory residents such as foreign laborers or international students, may still be eligible to purchase a residential property in Canada in certain circumstances.
Increased withdrawal limits for Registered Retirement Savings Plans
Beginning April 16, 2024, First-Time Home Buyers will have the ability to withdraw an increased amount of funds from their Registered Retirement Savings Plan (RRSP) in order to contribute to the down payment on their initial residence.
Specifically, the withdrawal limit for first-time home purchasers in Canada will increase by $25,000 from the previous limit to $60,000 after the change takes effect. This amount can be used to apply towards a down payment on the property. Prior to April 16, the maximum amount that could be withdrawn from an individual’s retirement savings plan (RRSP) for the purpose of making a down payment on a property was $35,000.
Minister Freeland has stated that the Tax-Free First Home Savings Account [FHSA] and increased RRSP withdrawal limits can be combined. According to Freeland, these initiatives will provide younger Canadians with additional resources to accumulate the funds necessary to purchase their first property.
*Additional information regarding FHSAs is provided below.
In other words, the government’s decision to increase RRSP withdrawal limits is anticipated to alleviate the initial financial burden of purchasing a property in Canada by enabling Canadians, including eligible newcomers, to access additional funds for a down payment.
Interesting Article: Wobbly Woes of Dutch Roll in Airplanes
Canada’s tax-free FHSA
A new savings account known as an FHSA was implemented by the Canadian government in 2022. This savings account is tax-free, allowing Canadian citizens and permanent residents to accumulate up to $8,000 annually towards the purchase of their first property. This account is distinctive in that it enables eligible account holders to take advantage of a variety of tax-related benefits while they accumulate the funds necessary to purchase their first property in Canada, including:
- Contributions made to an FHSA are tax-deductible and provide account holders with tax rebates.
- The growth that occurs as a result of all contributions to an FHSA is tax-free.
- When an account holder determines that they are prepared to withdraw funds from their FHSA to use as a down payment on a residence, the funds are not subject to taxation.
- Please be advised that the lifetime contribution limit for tax-free FHSAs is $40,000.
RRSP repayment period extension
The Canadian government has announced that Canadians with an RRSP, including newcomers, will soon have a more than double the amount of time to begin repaying their contributions after making a withdrawal to pay for the deposit on a property.
Specifically, Minister Freeland stated that “first-time property buyers who withdraw money from their RRSPs [by] Dec. 31, 2025, will now have five years to commence repayments.” Before the extension of this repayment period, Canadians and newcomers who held an RRSP were required to commence repayment of their contributions within two years.
It is anticipated that this extension will provide eligible account bearers with a greater degree of financial flexibility when it comes to repaying their RRSP. This will be advantageous for new homeowners in the short term and for long-term budget planning.
Mortgages with an extended amortization period
The Canadian government has announced that certain first-time homebuyers with insured mortgages will be allowed to repay their mortgages over a period of 30 years starting on August 1 of this year.
Note: This extended amortization period is only available to first-time purchasers who acquire a newly constructed residence.
The monthly payments that homeowners are required to make on their property are reduced by the longer mortgage amortization periods, which has a beneficial effect on homeowners in Canada.
Consequently, it is anticipated that this initiative will enable a greater number of younger Canadians to afford the monthly mortgage on a new property, as Minister Freeland stated. As a result, this should generally increase the accessibility of homeownership for younger Canadians throughout the nation. This may also be advantageous for migrants who typically immigrate to Canada as young adults.
Modifications to the Canadian Mortgage Charter
This autumn, the Canadian government revised its Canadian Mortgage Charter, a change that will be particularly advantageous to “vulnerable consumers” and migrants to Canada.
The government’s most recent Charter update is summarized below. As per a recent article published by CBC News, the new Mortgage Charter update:
- Banks will now be obligated to “communicate with consumers regarding affordability alternatives four to six months prior to their mortgage renewal date.”
- Lenders will now be required to communicate with consumers “up to 24 months prior to the renewal of a homeowner’s mortgage” in order to explore their options. Lenders are now required to “offer temporary extensions on the amortization period to mortgage holders who were experiencing financial difficulties.”
- *According to Canada’s Deputy Prime Minister/Finance Minister, this provisional extension measure is now being made permanent, contingent upon the circumstances of the resident. Additionally, Freeland stated that this new update may be applicable to “individuals with insured mortgages,” and that there will be no additional fees or penalties associated with the modification.
The government has announced that the following Charter updates will assist “vulnerable debtors under financial duress,” in addition to the aforementioned, as stated in the same CBC News article:
Providing mortgage relief measures by waiving fees and costs that would have otherwise been charged
When mortgage relief measures result in mortgage payments that do not cover interest payments on a loan, interest on interest is waived.
At the time of a mortgage renewal, insured mortgage holders will not be required to “re-qualify under the stress test” when they transition lenders. Borrowers will be permitted to “make large sum payments to avoid negative amortization or transfer their principal residence without incurring prepayment penalties.”
Extended notice periods for banks and other lenders should provide homeowners with additional time to strategize regarding their financial future. Furthermore, it is anticipated that certain individuals will receive exemptions from fees and interest payments, and housing may now be more affordable due to the extension of amortization periods.
Dwayne Paschke specializes in writing, management, development, design and Search Engine Optimization. Although he has worked for 8 years in the industry, he never found an ideal person to work with as a partner. Later, he found Sebastian Pearson, and they both found specific understanding between them. Both of them divided their tasks in this project and are running this venture successfully.