On September 16th, 2024, the Canadian government announced major changes to mortgage reforms—possibly the most significant in decades. These reforms aim to make homeownership more attainable for Canadians by addressing two critical areas: insured mortgages and amortization periods.
As of December 15, 2024:
The cap for insured mortgages will increase to $1.5 Million
The eligibility criteria for new 30-year amortization periods will be expanded to include all first time home buyers and all buyers of new builds
These changes could offer Canadians more flexibility in buying homes, especially in today’s competitive real estate market.
Increased Cap for Insured Mortgages
Of the most notable changes in the upcoming reforms is the increase in the price cap for insured mortgages, rising from $1 million to $1.5 million. This change is designed to better align with the realities of today’s housing market, particularly in major cities like Toronto, where the average home price exceeds $1 million.
Under the current rules, homes priced over $1 million are not eligible for mortgage default insurance, meaning buyers must put down a minimum of 20%. However, the new cap will allow buyers to qualify for insured mortgages on homes up to $1.5 million.
The down payment requirements relating to the increased cap are as follows:
5% down on the first $500K
10% down on the portion of the purchase price between $500K and $1.5 Million
This increase will make it easier for Canadians to purchase more expensive homes without needing to save a large 20% down payment. In addition to reducing the financial barrier to homeownership, insured mortgages often come with lower interest rates, making monthly payments more manageable. Lower interest rates can also help more buyers pass the mortgage stress test, further expanding the pool of Canadians who qualify for home loans.
Down Payments: Explained
When purchasing a home, a down payment is the amount of money you initially put toward the purchase price. The minimum down payment required in Canada depends on the price of the home. For homes under $1 million, buyers can make a down payment of as little as 5% on the first $500,000 and 10% on the remaining amount.
However, in any situation that you're putting down less than 20%, the mortgage is considered "high-ratio" and requires mortgage default insurance.
Mortgage default insurance protects lenders in case a borrower defaults and cannot make their monthly mortgage payments. The new increased cap for high-ratio mortgages will allow buyers to take advantage of insured mortgages for homes up to $1.5 million. This means they can make smaller down payments while still being eligible for competitive mortgage rates, making it easier for more Canadians to enter the housing market.
Benefits of Increasing the Cap
Raising the insured mortgage cap to $1.5 million brings several advantages for Canadian homebuyers:
Insured mortgages typically offer lower interest rates meaning lower monthly payments
Lower monthly payments can reduce threshold for the mortgage stress test, meaning more buyers will qualify for home loans
Buyers can enter the market without saving a substantial down payment
Expands access to more expensive homes which aligns with current real estate market conditions
Expanding Eligibility for 30-year Amortizations
The other major component of the upcoming mortgage reforms is the expansion of eligibility for 30-year amortization periods. Currently, only first-time buyers purchasing new builds are eligible for a 30-year amortization.
As of December 15th, 2024, the eligibility criteria will be expanded to include:
All first-time homebuyers—whether purchasing new builds or resale homes
All buyers of new builds, regardless of whether they are first-time buyers
What is Amortization?
The amortization period is the total length of time it takes to pay off your mortgage through regular monthly payments. Currently, the maximum amortization period for first time buyers purchasing residential resale is 25 years.
When applying for a mortgage, lenders calculate the maximum monthly payment amount that you can comfortably afford based on your income and other expenses/debts you may carry. Extending the amortization period can lower the amount of each monthly payment, making homeownership more affordable. Lower monthly payments could allow borrowers to qualify for a larger loan, giving them access to more expensive homes. This flexibility can be especially helpful for first-time homebuyers who may be stretching to afford a home in high-cost markets.
Benefits of Expanding the Amortization Period
Expanding the amortization period to 30 years brings several key benefits:
Homeownership will become accessible for more Canadians
Lower monthly mortgage payments by as much as 8.9%
For buyers who choose to pay higher monthly amounts, purchasing power increases by approximately 9.7% meaning they can afford more house
Likely to incentivize developers to construct more new homes, aiding the housing crisis
The Bottom Line
While the new mortgage reforms are designed to make homeownership more affordable for Canadians, there are some potential trade-offs. The increase in the insured mortgage cap and expanded eligibility for 30-year amortizations could stimulate even more housing demand and it’s likely that it will take time for developers to build enough homes to ease supply pressures. Additionally, buyers should be aware that while longer amortizations offer lower monthly payments, they result in higher total interest paid over the life of the loan.
Despite concerns, these changes are a major step in the right direction, especially for first-time buyers and those entering competitive markets like Halifax. By offering greater flexibility with down payments and amortizations, these changes provide new opportunities for Canadians to achieve their homeownership goals. As always, consulting with a trusted mortgage broker or contact us to help determine the best approach for your unique situation.
Resources: Canada.ca Backgrounder - Delivering the Boldest Mortgage Reforms in Decades
Author: Brynn Carmody
Real Estate Assistant
Andrew Perkins Real Estate
Keller Williams Select Realty