Mortgage Reform in Canada (2024): Breaking Down Who It May Affect and How

On December 15, 2024, significant changes to mortgage rules will take effect in Canada, particularly targeting first-time homebuyers and those purchasing new homes. These reforms are part of the federal government’s broader strategy to improve housing affordability and accessibility amid high home prices in key markets such as the GTA West.

Key Changes

30-Year Amortization for First-Time Buyers and New Builds:

Starting December 15, 2024, first-time homebuyers will be able to opt for a 30-year amortization period, rather than the previous 25 years. This extended timeline will also apply to buyers of newly constructed homes, regardless of whether they are first-time purchasers. The longer amortization will lower monthly loan payments, making it easier for buyers to manage their budgets, although it will result in higher interest payments over the loan’s lifetime.

Increase in CMHC Insured Mortgage Cap: 

Another major change is the increase in the maximum purchase price for an insured mortgage, from $1 million to $1.5 million. This allows buyers to access mortgage insurance on homes priced up to $1.5 million, with down payments as low as 5%. The increase in the cap is especially significant in high-priced markets like Vancouver and Toronto, where even starter home prices frequently exceed the previous limit.

Easier Lender Switching: 

The new rules also make it easier for borrowers to switch lenders when renewing their mortgage. Currently, renewing with a new lender often requires passing a mortgage stress test again, but under the new rules, insured mortgage holders can switch without undergoing this additional qualification, increasing competition and potentially lowering interest rates for homeowners.

Who Do These Changes Affect?

These reforms primarily affect:

First-time homebuyers now have the option of stretching their mortgage over a longer period, easing the monthly cost burden. Additionally, more expensive homes (up to $1.5 million) now qualify for lower down payments through mortgage insurance. 

Buyers of newly constructed homes, regardless of whether they are first-time buyers, can take advantage of the 30-year amortization period, making it easier for developers to attract buyers. 

Current homeowners looking to renew their mortgage (if it is an insured mortgage only) will have the ability to switch lenders without re-qualifying through a stress test. This offers flexibility and potential savings on mortgage renewals.

Consequences for the New Rules

For Buyers:

These changes offer substantial relief to buyers struggling with affordability. Lower monthly payments, coupled with the ability to buy higher-priced homes with smaller down payments, can make it easier for more Canadians to enter the housing market. However, longer amortizations mean higher total interest paid over the life of the loan.

For the Housing Market:

While these measures are intended to increase affordability, there are some concerns they may inadvertently drive up home prices by increasing demand, particularly in high-cost markets. More buyers with access to larger mortgages could push prices higher, exacerbating affordability issues in some regions. Time will tell.

For Lenders:

The new rules may increase competition among lenders, as borrowers with insured mortgages will have greater flexibility in switching lenders at renewal without the barrier of a re-qualification stress test. This could pressure lenders to offer more competitive rates.

Learn More...

This marks one of the most significant updates to Canadian mortgage policy in years, aimed at helping first-time buyers and those purchasing newly built homes to overcome the hurdles of affordability. These changes will officially take effect on December 15, 2024 to allow time for lenders and insurers to adjust their processes and for buyers to prepare for the new rules.

For more detailed information, you may wish to review the Government of Canada’s full announcement and additional insights from mortgage experts.

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