Big Mortgage Changes: What's New?

Canadians will soon benefit from a variety of mortgage changes that are aimed toward making housing more affordable. Last month the federal government announced significant updates to Canada's mortgage rules, which will take effect on December 15, 2024.

One of the biggest changes made is the new price cap for insured mortgages. The limit has been raised from $1 million to $1.5 million, allowing buyers to put less than 20% down for properties up to $1.5 million, by way of an insured mortgage. A minimum 5% down payment is needed for the portion of the purchase price up to $500,000, and at least 10% for the portion between $500,000 and $1.5 million. This will help many more buyers in urban areas like Toronto where home prices often exceed $1 million. In theory, buyers will be able to purchase a $1.5 million home with just a $125,000 down payment.

Another considerable change is the expansion from a maximum 25 year amortized mortgage to 30 years for more home buyers. The 30 year option is now available for first time home buyers with insured mortgages (i.e. under 20% down payment). Any buyer purchasing a newly built home can now have a 30 year amortized mortgage as well, which was changed in an effort to help pickup slowing new home sales. The goal of this change is to make home ownership more attainable by lowering monthly payments, and in turn, extending amortization periods.

The requirement to qualify under the mortgage stress test for a mortgage renewal has now been eliminated. The stress test was introduced in 2018 and was designed to make sure homeowners can afford their mortgage payments if rates increase. It requires borrowers to be approved for a rate 2% higher than the lender's rate or 5.25%, whichever is higher. The stress test is still a requirement for new mortgages, but has been scrapped for any mortgage renewals even if the borrower is switching lenders. 

On top of these major changes, the interest rate has dropped again on October 23rd by 0.5%. This is the largest rate reduction since 2020. The Bank of Canada's key rate is now 3.75%, with the prime rate now sitting at 5.95%. It is clear that the efforts from the Canadian government and the Bank of Canada are meant to stimulate our sluggish real estate market, and the economy as a whole. With inflation on its way down, the Bank of Canada is prepared to make further cuts to the interest rate if current trends continue. 

If you have questions about these recent changes, or want to know how you will be affected, reach out to me.