Canada’s new mortgage and down payment rules come into effect today. Here’s what you need to know
Changes to the rules surrounding mortgages that come into effect Sunday should help more people enter the housing market as buyers, real estate experts say.
The changes, which were announced by the federal government back in September, include allowing first-time home buyers and buyers of newly built homes to draw out the length of their mortgages, among other things.
The updates, effective Dec. 15, are a good move, local mortgage broker Mary Sialtsis told the Star: “It’s going to open some new opportunities for buyers.”
Here’s what you need to know.
What are the new rules?
For the first time since 2012, the price cap for mortgages insured against default has been increased, to $1.5 million from $1 million, to permit more people to qualify with smaller down payments.
Before this change came into effect, first-time buyers of homes purchased for over $1 million had to put at least 20 per cent down, but those buying for less than $1 million could put as little as five per cent down.
The updated rules also make first-time home buyers with insured mortgages, and any buyer of a new build, eligible for a 30-year amortizations — giving them more time to pay down the balance — as opposed to the 25-year limit faced by others.
This expands on a decision that came into effect on Aug. 1 that made 30-year amortizations available to first-time home buyers who were purchasing newly built homes.
In addition to these changes, homeowners with insured mortgages can now refinance their homes up to $2 million to build an additional dwelling unit or laneway home.
How will this affect home buyers and owners?
The mortgage term extension for first-time buyers is notable because it may increase some people’s buying power enough to let them enter the market, whereas before “the 25-year limit may have kept some people out,” said Sialtsis. A longer mortgage term can also mean more interest paid in the long-run, unless borrowers make extra payments or commit to paying more frequently — for example, on a biweekly basis as opposed to twice a month, making 26 annual payments instead of 24, she explained.
And though it may seem to favour those already fairly well-off, the increase to the insured mortgage cap is significant for people living in large urban centres, like in Toronto, where home prices are higher than in other parts of the country.
The median sale price for a single detached home in Toronto is $1.23 million, according data from the Canadian Real Estate Board for the third quarter of 2024. For condo units, that price is around $615,250.
While the changes provide more options to new buyers, observers previously told the Star in September that home price inflation is a risk when increasing household borrowing power.
“This is really just a short-term policy fix that’s going to drive home prices higher,” said John Pasalis, president of the brokerage Realosophy. “Allowing people to take on debt doesn’t improve affordability.”
Under the previous cap, Shawn Zigelstein, a real estate broker with Team Zold at Royal LePage, said it wasn’t uncommon to see offers on homes for $999,999 because if buyers went any higher they’d have to make a larger down payment.
“People had $50,000 put down. But if they went up another dollar, they suddenly needed $200,000 to put down,” he explained.
This move will also ease competition for homes below the $1-million price point, Sialtsis added.
Similarly, the ability to refinance won’t necessarily affect a “huge group of buyers or borrowers,” she explained, but it will help encourage homeowners to contribute to gently increasing density.
For those curious about where these changes leaves them, Sialtsis recommends reaching out to a professional to crunch the numbers. Your hopes “may not be as impossible as you think,” she said.
