New Mortgage Rules in Ottawa: The Big Changes for Homebuyers
This week, the federal government announced much broader changes to mortgage amortizations and insurance rules than indicated in the spring budget, calling them “the most significant mortgage reforms in decades.” Here’s a look at what those changes are and what they might mean for borrowers, lenders, builders, and insurers.
What are the changes?
Ottawa is introducing 30-year amortization periods for all first-time homebuyers and all buyers of new builds, regardless of whether it is their first home. This goes far beyond the longer amortization periods introduced in August that applied only to first-time homebuyers of new builds including condominiums. At the same time, effective Dec. 15, 2024, the government expanded mortgage insurance qualification to cover houses that cost more than $1 million, up to $1.5 million.
Why were the changes made?
Faced with a housing shortage and an affordability crisis, the government is aiming to make it easier for younger buyers to get into the market as it attempts to boost supply by around four million homes. The government also seemed to take into account that the average house price in Canadian cities such as Toronto and Vancouver is now over $1 million, which wasn’t the case in 2012 when that was the cap put on mortgages to qualify to be insured. The national average home price in August 2024 was $649,100, according to Canadian Real Estate Association (CREA). Some more cynical observers view the expanded changes as an attempt by the minority Liberal government, which recently lost a support agreement with the NDP, to curry favour with voters.
What will they mean for homebuyers?
At at time when interest rates are coming down and providing some relief to homebuyers, the new rules mean paying for a house will be stretched across more years, reducing the monthly cost. The mortgage industry has been calling for longer amortizations, saying it would be a concrete measure to improve affordability by helping homebuyers meet borrower stress tests on managing mortgage payments. “The ability to spread payments over a longer time period will help with borrowers’ qualification ratios, which in turn will help them pass the mortgage stress test, particularly in markets where home prices remain above the million-dollar threshold,” said Penelope Graham, a mortgage specialist at Ratehub.ca.
