The Canadian government has announced new mortgage policies that will take effect on December 15, 2024. These changes are designed to help first-time homebuyers and current mortgage holders:
For Insured Mortgages (less than 20% down payment):
- The maximum purchase price will increase from $1 million to $1.5 million.
- The maximum amortization period extended from 25 years to 30 years for first-time homebuyers and anyone purchasing a newly built, owner-occupied home (or condo).
These policies are part of the government’s broader effort to improve housing affordability by offering more options to first-time buyers and new home purchasers. The increased price limit for insured mortgages expands buying opportunities in higher price point housing options and areas like the GTA and Vancouver.
$1.5 vs. $1 Million Downpayment = 175K Reduction
These changes allow first-time homebuyers to purchase a $1.5-million home with as little as a $125,000 down payment—a significant reduction from the previous requirement of $300,000 for uninsured borrowers. Raising the mortgage insurance cap from $1 million to $1.5 million will open the Greater Toronto Area (GTA) single-family home market to more buyers.
25 to 30 years Amortizations = 10% More Buying Power
By extending amortizations from 25 to 30 years, buyers can increase their purchasing power by around 10%, similar to the effect of a 0.90% reduction in mortgage rates. The goal of this change is to make homeownership easier by allowing for lower monthly payments by extending amortization periods, helping to ease the burden of high interest rates and enabling buyers to qualify for larger purchase prices.
Removal of Stress Test for Existing Mortgage holders:
- Renewing borrowers will no longer need to pass the stress test when switching lenders for renewal. This will take place as of November 21, 2024.
As interest rates have risen over the past three years, many homeowners who bought during the historically low rates of 2020 and 2021 will be renewing their mortgages soon. Without the stress test, they can now shop around for better rates from different lenders. Previously, the stress test discouraged homeowners from switching lenders, as they were forced to stay with their current lender and accept higher rates. While the removal of the stress test for mortgage renewals boosts competition among lenders, which will encourage better rates and giving homeowners more choices to stay in their homes.
My Thoughts:
While these new policies aim to make housing more affordable, we’ve seen similar efforts in the past—like in 2017—when policies that “help buyers buy” ultimately led to price increases. It’s not a question of if prices will rise, but when and how much.
As more buyers qualify for larger loans by lowering their monthly payments, they will stretch their budgets and purchase more expensive homes with smaller down payments. However, they’ll also be locked into longer mortgage terms, paying more interest over time.
Regarding home prices, we’ve likely already hit the bottom of the market. These changes are designed to increase demand and purchasing power, which will eventually push prices higher.
On the other hand, the new rules for mortgage renewals will give homeowners more flexibility and reduce the number of distressed sellers, as they can now shop around for better rates without being stuck with their current lender.
This is definitely going to make buying homes more possible for now and for those who can actually afford it…until the prices climb out of reach again.
So, is the government truly making homes more affordable, or just allowing buyers to take on more debt? Only time will tell.