On April 11, 2024, Deputy Prime Minister and Finance Minister Chrystia Freeland announced several new housing affordability measures designed to help first-time buyers and current homeowners.
In light of federal restrictions imposed last year on foreign home buyers (more on this later), newcomers to Canada may be curious to know if they are eligible for any of the recently announced housing affordability measures.
This article describes how policies that implement increased RRSP withdrawal limits and extended mortgage terms can benefit newcomers to Canada, making it easier to purchase their first home.
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We also provide clear guidance on what these changes mean and discuss how newcomers, especially temporary residents like international students and foreign workerscan chase them.
Understanding Canada’s restrictions on foreign home buyers
Effective January 1, 2023, the Canadian government enacted the Prohibition of the Purchase of Residential Property by Non-Canadians Act.
This government policy, which was recently extended until January 1, 2027, was implemented to restrict “non-Canadians*… from purchasing residential properties,… defined as buildings with 3… or [fewer dwelling units, including] townhouses and condominium units.”
*Non-Canadians are defined as “those who are not Canadian citizens or permanent residents”
There are certain situations where non-Canadians, including temporary residents such as foreign workers or international students, may still be eligible to purchase residential property in Canada. Click here for more information.
Increase in withdrawal limits from the Registered Retirement Savings Plan
Starting April 16, 2024, first-time homebuyers will be able to withdraw more money from their Registered Retirement Savings Plan (RRSP) to make a down payment on their first home.
Specifically, after the change comes into effect, first-time homebuyers across Canada will be able to withdraw $60,000 toward a down payment on the property they are purchasing, an increase of $25,000 from the previous allowable withdrawal limit. Before April 16, first-time homebuyers could only withdraw $35,000 from their RRSP for a down payment on a home.
According to Minister Freeland, higher RRSP withdrawal limits “plus the Tax-Free First Home Savings Account* [FHSA]Taken together, Freeland says, these initiatives will “give younger Canadians more tools to save what they really need” to buy their first home.
*More information about FHSAs below.
In other words, the government’s decision to increase RRSP withdrawal limits is expected to allow Canadians, including eligible newcomers, to access more money they can use for a down payment, easing the initial financial burden of purchasing a home. home in Canada.
Canada Tax Free FHSA
In 2022, the Canadian government introduced a new savings account called the FHSA. This tax-free savings account allows Canadian citizens and permanent residents to save up to $8,000 per year for their first home. This account is unique because it allows eligible account holders to enjoy several tax-related benefits while saving to purchase their first home in Canada, such as:
- Contributions made to an FHSA are tax deductible and provide account holders with tax refunds.
- The growth that occurs with all the money contributed to an FHSA is tax-free
- When an account owner decides they are ready to withdraw money from their FHSA for a down payment on their home, the money withdrawn from this account is tax-free.
Note: Tax-free FHSAs have a lifetime contribution limit of $40,000.
RRSP Extended Repayment Period
According to the Canadian government, Canadians with an RRSP, including newcomers, will soon have more than twice as much time as before “to start paying their RRSP contributions.” [after making] a withdrawal to pay the deposit on a home.”
Specifically, according to Minister Freeland, “first-time homebuyers withdrawing money from their RRSPs [by] December 31, 2025 will now have five years to begin payments.” Before the extension of this payment period, Canadians and newcomers with an RRSP had only two years before they had to start paying their contributions.
This extension is expected to allow eligible account holders to have a greater level of financial flexibility when it comes to paying out their RRSP, something that will be beneficial both in the short term and for long-term budget planning for the new owners.
Extension of the mortgage repayment period
Starting August 1 of this year, some* first-time home buyers with insured mortgages “will have 30 years to pay [their] repayment of the mortgage,” according to the Canadian government.
Note: First-time homebuyers will be eligible for this extended amortization period only if they purchase a newly built home.
Longer mortgage amortization periods have a positive impact on homeowners in Canada by reducing the monthly payments they must make on their property.
Therefore, it is hoped that this initiative, in the words of Minister Freeland, will make it possible for “more young Canadians [to] pay the monthly mortgage on a new home.” Ultimately, this should, in turn, make homeownership more accessible to younger Canadians across the country. This may also benefit newcomers who typically They immigrate to Canada as young adults.
Changes to the Canadian mortgage charter
The Canadian government updated your Canadian Mortgage Letter this fall, an update that will especially benefit newcomers to Canada and other “vulnerable borrowers.”
A summary of the most recent update to the government’s Charter is available below.
According to a recent CBC News articlein line with the new update of the Mortgage Contract:
- Banks will now be required to “contact homeowners four to six months before their mortgage renewal date to inform them of affordability options.”
- Lenders will now have to contact borrowers “up to 24 months before the renewal of the homeowner’s mortgage to discuss options.”
- Lenders must* now “provide temporary extensions in the repayment period for mortgage holders who were facing financial difficulties.”
*It should be noted that this once-temporary extension measure “is now becoming permanent…depending on the circumstances of the homeowner,” according to Canada’s Deputy Prime Minister/Minister of Finance. Freeland also said this new update may even apply to “people with insured mortgages and making that change will not incur any additional fees or penalties.”
In addition to the above, according to the same CBC News article, the government has announced that the following updates to the Bylaws will help “vulnerable borrowers under financial pressure”:
- Waives fees and costs that would otherwise have been charged for mortgage relief measures
- Waive interest on interest when mortgage relief measures result in mortgage payments that do not cover interest payments on a loan
- Holders of insured mortgages will be exempt from “requalifying under the stress test when changing lenders at the time of mortgage renewal”
- Borrowers will be able to “make lump sum payments to avoid negative amortization or sell their primary residence without incurring prepayment penalties.”
Homeowners should now have more time to plan their financial future through the extended notice periods imposed on banks and other lenders. Additionally, it is expected that certain individuals will see some fees and interest waived and that housing may now become more affordable through extended repayment periods.
reference: www.cicnews.com