Justin Dallaire senior editor
This is the MoneySense Special Edition Newsletter, where we cover news headlines affecting Canadians’ finances.
The federal government announced two big changes to mortgage rules today. Both are aimed at making home ownership more affordable for Canadians, particularly those entering the real estate market for the first time. The new rules take effect on Dec. 15.
First, the government is raising the cap for insured mortgages. Currently, Canadians buying a home with a down payment of less than 20% of the purchase price must pay for mortgage default insurance, which protects lenders. Homes valued at $1 million or more must have a down payment of at least 20%, and they’re ineligible for mortgage default insurance. Under the new rules, buyers will be able to purchase homes valued at up to $1.5 million with a down payment of less than 20% and get an insured mortgage.
Second, the government is expanding access to 30-year mortgages. Currently, insured mortgages can have amortizations of no more than 25 years. (The exception is first-time buyers acquiring a new-construction home, who have been able to get a 30-year mortgage since Aug. 1, as part of changes introduced in the 2024 federal budget.) As of Dec. 15, all first-time home buyers will be able to access 30-year amortizations, regardless of the type of home, as will anyone buying a new-build home (including condos).
The government describes the changes as “the most significant mortgage reforms in decades.”
What does it mean for you?
Many Canadians view mortgage affordability through the lens of monthly payments—not the total cost of borrowing to buy a home. So, the new rules will indeed make home ownership more affordable for first-time buyers—though it may also lead buyers to pay more over the life of the loan than they would with a shorter mortgage.
Raising the cap on insured mortgages will “make it possible for buyers to purchase higher-priced homes with smaller down payments, and in some cases, give them access to more competitive mortgage rates as insured borrowers,” Penelope Graham, a mortgage expert at Ratehub, tells MoneySense exclusively for this newsletter. (Ratehub and MoneySense are both owned by Ratehub Inc.) “Spreading payments over a 30-year amortization period will also help improve monthly cash flow, which in turn helps with qualification ratios and passing the mortgage stress test.”
The Canadian real estate market has had a slow summer, in spite of three Bank of Canada interest rate cuts, in June, July and September. Surely, these cuts have lessened borrowing costs, and theoretically, should have sparked more home purchases (as ultra-low interest rates did during the pandemic).
Graham believes the mortgage rules coming into effect in December may be the push buyers need. “Combined with [more] anticipated interest rate cuts from the Bank of Canada, today’s announcement could be the incentive buyers have been waiting for to re-enter the market.”
A surge in buyer demand may ultimately drive up home prices—a side-effect the federal government should be trying to avoid, given the high prices Canadians already face. So, the question remains: Is this a good time to buy a home in Canada?