New policies boost home ownership for newcomers in Canada as the Deputy and Finance Minister declared multiple housing affordability initiatives. On April 11, the two ministers announced several initiatives. These measures are an effort to assist first-time home buyers and existing homeowners. Last year, the government imposed several limitations on foreign home buyers. Therefore, newcomers here are keen to understand if they can access any recently declared housing affordability initiatives.
New policies boost Home Ownership for newcomers in Canada
Let’s delve into how these policies, which encourage increased RRSP withdrawal limits and prolonged mortgage terms, tend to benefit new immigrants. This way, it becomes convenient to buy their first home in Canada.
There are many ways in which temporary residents, including international students and foreign workers, can access these changes.
Foreign Home Buyers and the limitations on them
The Canadian government brought forth the Prohibition of Residential Property under the Non-Canadians Act on January 1, 2023. This government policy had to be extended until January 1, 2027. The government introduced this policy to prevent the non-Canadians from purchasing the residential property. This type of property could be in the form of buildings with three or less dwelling units, such as semi-detached houses and condominium units. The term non-Canadians are not Canadian citizens or PR holders.
Certain situations might exist where non-Canadians, such as temporary residents, including international students or foreign workers, will qualify for the purchase of residential property.
Enhanced RRSP withdrawal limit
With effect from April 16, 2024, first-time home buyers will have the choice to withdraw money from the RSSP so that they can submit the down payment for their first home. Whenever the change occurs, Canada’s first-time home buyers will have access to withdraw $60,000 to contribute to a down payment on their property purchase. This accounts for a rise of $25,000 from the former withdrawal limit. Before April 16, those purchasing a home for the first time had permission to withdraw $35,000 from the RRSP for a home’s down payment.
Minister Freeland claims they can combine the enhanced RRSP withdrawal limits with the tax-free FHSA (First-Home Savings Account). Combining these two initiatives will provide young Canadians with more saving tools as they are required to buy their first home.
In short, the government’s decision to enhance the withdrawal limit on the RRSP will enable Canadians and newcomers to get more money for their down payment. As a result, it will reduce the initial burden of buying a home in Canada.
The tax-free FHSA
The Canadian government brought forth a new savings account, FHSA, in 2022. Canadian citizens and permanent residents will save at least $8,000 yearly for their first home. This tax-free account is a unique option, enabling qualifying account holders to access the tax benefits while saving money for their first home in Canada. They will get the following benefits:
- The FHSA contributions are tax-deductible and provide the people with accounts to get tax rebates.
- All growth that occurs with funds contributed to the FHSA, which is exempt from taxes.
- The funds removed from this account are tax-free when the account holder decides they are ready to withdraw money from their FHSA for a down payment on a house.
The lifetime contribution cap for tax-free FHSAs is $40,000.
The extension of the RRSP repayment period
Canadians and new immigrants with an RRSP will have to double the time to repay their contributions once they withdraw for their first home. Furthermore, Minister Freeland claims that first-time home buyers, until December 31, 2025, will have five more years to start their repayments.
Prior to the extension of the repayment period, Canadians and new immigrants with an RRSP had only two years to start their repayment. Also, this extension will likely provide qualifying account holders with a higher count of financial flexibility in terms of RRSP repayment. Moreover, this will prove advantageous for new homeowners in the short and long term.
Longer mortgage repayment period
The Canadian government claims that certain first-time home buyers with insured mortgages will have 30 years to repay their mortgages. This will commence as of August 1 this year. More extended repayment periods lead to reduced monthly payments on their property. This proves beneficial for new homeowners.
Minister Freeland claims this new initiative will help younger Canadians pay their monthly mortgage for a new home. Overall, younger Canadians receive a more accessible homeownership through this initiative. As a result, this could be more beneficial for newcomers who move to Canada as young adults.
Canadian Mortgage Charter – What are the recent changes?
The government of Canada made changes to the Canadian Mortgage Charter this fall. The latest update will particularly benefit new immigrants to Canada and other vulnerable borrowers.
The new updates related to the Canadian Mortgage Charter are as follows:
- Banks will reach homeowners before their mortgage renewal date, that is, four to six months, to inform them about the affordability alternatives.
- Lenders will need to connect with borrowers in advance. They must reach out at least 24 months before a homeowner’s mortgage renewal to discuss alternatives.
- Lenders must also offer temporary extensions on the repayment period for mortgage holders who face severe financial challenges.
Freeland claims that this latest update might even apply to those with insured mortgages, and such a change will not occur through additional fees or penalties.
The following Charter updates will support vulnerable borrowers undergoing financial crisis:
- Exemption from fees or charges otherwise applicable for mortgage relief measures.
- Relieving them from interest on interest when mortgage relief initiatives lead to mortgage payments, failing to surpass interest payments on a loan.
- Insured mortgage holders will not need to re-qualify under the stress test when they decide to shift between lenders during their mortgage renewal.
- Borrowers will have to submit lump sum amounts to avoid negative amortization. They could also sell their main residence devoid of additional fees or penalties.
With extended notice periods from banks and lenders, homeowners gain extra time to plan their financial future. Additionally, some individuals may benefit from waived fees and interest payments, potentially making housing more affordable due to longer amortization periods.
Our immigration representatives at Make Home Canada have immense knowledge related to Canadian immigration. To clarify your doubts or queries, you may write to us at [email protected]
