To ease the current housing crisis in Canada, the federal government recently announced changes to some rules surrounding insured mortgages.
On September 16, 2024, Finance Minister Chrystia Freeland addressed the housing affordability issue plaguing millions of Canadians and announced changes that would take effect later this year. Most notably, the changes centre on two points: maximum amortization periods and caps on home prices for insured mortgages.
How Do The New Insured Mortgage Rules Differ From Current Rules?
The upcoming changes to insured mortgages affect the following components:
| Mortgage Amortization Period | 30-year amortization periods will be available to first-time home buyers and any buyer purchasing a newly constructed home |
| Insured Mortgage Cap | Insured mortgages will be capped at $1.5 million. |
| Effective Date | These changes will be in effect starting December 15, 2024. |
Maximum Amortization Period
In Canada, insured mortgages are those that are backed by mortgage default insurance, also known as CMHC insurance. Before the federal government announced the upcoming changes to insured mortgage rules, this type of insurance was required when a borrower makes a down payment of less than 20% of the home’s purchase price. The reason for this insurance is to protect lenders in case the borrower defaults on their mortgage payments.
As part of its Budget 2024 announcement in June 2024, the federal government announced changes to the stipulations for insured mortgages, which took effect on August 1, 2024. The new rules allow 30-year mortgage amortization periods for first-time homebuyers who buy newly constructed homes, including condominiums. Before this change, the maximum amortization for insured mortgages was 25 years.
This past week, Finance Minister Chrystia Freeland announced additional changes to mortgage rules that expand buyer eligibility for 30-year amortization periods. Effective December 15, 2024, homebuyers will be able to take out mortgages with a 30-year amortization period if they’re first-time buyers or if they’re buying a newly constructed home. No longer will homebuyers need to meet both criteria to qualify for an extended amortization period.
Insured Mortgage Caps
As it stands, homes priced over $1 million are ineligible for mortgage default insurance. That means homebuyers purchasing a home worth over $1 million are currently required to make a down payment of at least 20% of the purchase price.
As per the federal government’s most recent announcement, insured mortgages will soon be capped at $1.5 million, an increase from $1 million. Given the rising price of homes across Canada, this increase in price caps for insured mortgages will expand the pool of buyers who are looking to buy homes worth over $1 million but are unable to make a down payment of over 20%.
How Will The New Mortgage Rules Affect New Homebuyers?
The new mortgage rules will help make housing more affordable for homebuyers in the following ways:
30-Year Amortization
First-time homebuyers will no longer have to focus on purchasing a newly built home as a way to take advantage of a longer amortization period. Adding an extra 5 years to their mortgage amortization will provide some extra time to pay off their home loans and reduce their monthly mortgage payment amounts.
While first-timers may meet one of the eligibility criteria for a 30-year amortization (being a new homebuyer), they currently also need to buy new construction to qualify for an extended amortization. When the new rules take effect in December, first-time buyers can also expand their choice of housing to existing homes. Further, all homebuyers — including those not first-timers — can also take advantage of 30-year amortizations if they purchase newly built homes.
1.5 Million Insured Mortgage Cap
Homebuyers can also include properties over the $1 million mark as part of their pool of potential homes to buy. Once the new rules take effect, buyers will be able to make a down payment of less than 20% on homes up to $1.5 million.
Lower down payments can help more Canadian homebuyers get into the housing market sooner, instead of spending more time saving for a heftier down payment.
Some experts are also hopeful that the new measures will encourage the construction of new housing, which can increase inventory and alleviate the housing shortage. Not only will this make more housing available, but it may also take the pressure off increasing home prices that are leaving more Canadians priced out of the housing market.
Will The New Rules Really Make Home Ownership More Affordable?
Whether the new changes will actually improve housing affordability for would-be homebuyers in Canada remains to be seen. Critics of the proposed changes to mortgage rules remain skeptical, particularly when it comes to how current homeowners will be affected when it comes time to renew their mortgages.
While the new changes may incentivize some new homebuyers to get into the housing market, there is still a question about how housing affordability will be impacted over the long haul. More specifically, some worry about the potential risk that such rule changes will have on triggering more demand for housing, which can ultimately add more pressure on home prices and worsen housing affordability over time.
The new changes may be considered just a quick fix to Canada’s current crisis, but experts agree that the issue facing the housing market requires more long-term solutions. Other issues are affecting the housing market and inventory shortage, including the high cost of building and the lack of adequate skilled workers in the construction industry.
This is a multi-faceted issue that requires more than just incentivization for young, new buyers to get into the market sooner rather than later.
Final Thoughts
Homebuyers may appreciate the extension of amortization periods and the cap increase on home prices for insured mortgages. Such changes can help new buyers enter the housing market sooner with a lower down payment while reducing their monthly mortgage payments. However, existing homeowners who are due for mortgage renewal in the coming months may not necessarily see any benefit to such changes. Further, whether housing inventory shortages will be improved over the long run is still uncertain.
