Guiding your clients through change to achieve their homeownership goals

Exciting opportunities are emerging in the housing market for homebuyers. As a realtor, your role is critical in guiding clients through these changes and assisting them in creating effective plans to achieve their homeownership goals by connecting them with a mortgage broker to determine affordability.

Understanding the new rules and guidelines will aid in strategizing and planning for future advancements in the real estate market.

Expanded Amortizations for First-Time Homebuyers

Effective December 15, first-time homebuyers will have access to 30-year amortizations. This adjustment can benefit your clients in two significant ways:

1. Lower income requirement. By extending the amortization period, the income needed to qualify for a home purchase decreases, enabling more clients to meet the necessary criteria.

2. Reduced monthly payments. Clients will see a decrease in their monthly payments, making homeownership more financially manageable. For example, on a $600,000 purchase, the monthly payment could decrease by approximately $250, offering greater budgeting flexibility.

Increased Insured Mortgage Cap to $1.5 Million

For clients with high incomes but struggling to save for a down payment, the increase in the insured mortgage cap to $1.5 million can expedite their journey to homeownership. Previously, purchasing a $1.4 million home required a $280,000 down payment. Now, clients can potentially buy the same property with a down payment of about $115,000, saving $165,000 in upfront requirements.

This change is advantageous for downsizers seeking to allocate more funds from the sale of their larger home towards retirement by putting less down on a new, smaller property. However, clients should consider accounting for closing costs, typically around 3.0% of the purchase price, in each scenario.

For a $600,000 purchase, anticipate clients needing an annual income of approximately $150,000 to meet current stress-test requirements.

Switching Lenders at Renewal: A Business Opportunity

While the idea of switching lenders may not initially seem beneficial for your business, it’s crucial to recognize that mortgages involve more than just interest rates. The Canadian Mortgage Charter now permits insured mortgage holders to switch lenders at renewal without undergoing a stress test. This change opens up opportunities for borrowers to explore better rates and terms, potentially saving them thousands of dollars.

Encourage clients to consider lenders that do not adhere to posted rates, as this strategy can significantly reduce Interest Rate Differential (IRD) penalties.

Case in Point

For instance, let’s compare a $1 million mortgage with three years left on a five-year term at a 5.0% interest rate:

By selecting a monoline lender (subject to qualifications), your client could save $25,000 in IRD penalties, aiding them in managing financial changes better and seizing new opportunities.

Tax-Efficient Savings Strategies

Additionally, two essential tax-efficient savings strategies have emerged to empower your clients on their homeownership journey:

1. RRSP withdrawal limit increase. The withdrawal amount from an RRSP has risen from $35,000 to $60,000 per borrower, providing extra funds for clients to contribute towards 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, reducing their taxable income. Unlike RRSP withdrawals, funds from this account do not require repayment, and any gains earned within it are tax-free. However, this account has a sunset clause in 2028, emphasizing the importance for clients to act promptly to maximize its benefits.

These recent changes offer 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 assist them in making informed decisions on their path to homeownership.