Canada’s “Boldest” Mortgage Reforms: Unexpected Changes Announced

On September 16, 2024, the Government of Canada introduced the most significant reforms to mortgage regulations in decades, aiming to unlock homeownership for more Canadians, especially younger generations struggling with affordability. These sweeping changes were outlined in a news release from the Department of Finance, signalling a shift in policies to make it easier for Canadians to purchase homes amidst rising housing costs. The changes came as a surprise to many. The new rules, which came into effect on August 1, 2024, include transformative updates that are expected to have wide-reaching effects on the housing market. 

Key Changes to Mortgage Rules

These reforms, described as the boldest mortgage changes in decades by the federal government, are intended to help more Canadians, especially first-time homebuyers and younger generations, secure homeownership. The changes will also impact investors in preconstruction properties, making mortgages more accessible. 

Introduction of 30-Year Amortizations for Insured Mortgages

One of the most significant reforms is the expansion of 30-year amortizations for insured mortgages, a measure designed to reduce monthly payments for borrowers. Effective December 15, 2024, first-time homebuyers will be able to access 30-year insured mortgages for all types of homes, not just new builds. Additionally, this change will apply to all buyers of preconstruction homes, including investors. This builds on a previous amendment, effective August 1, 2024, which allowed 30-year amortizations for first-time homebuyers purchasing new builds.

This change will provide borrowers with longer terms to repay their mortgages, thereby reducing their monthly payments by approximately 9% compared to 25-year amortizations, with all other factors being equal, according to an Edge Realty special report. The goal is to make homeownership more affordable, particularly in expensive markets where housing prices have made it difficult for many to enter the market.

Increase in Insured Mortgage Cap to $1.5 Million

Another significant change is the increase in the insured mortgage price cap from $1 million to $1.5 million. This adjustment, effective December 15, 2024, reflects the rising cost of homes in Canada’s more expensive cities, such as Toronto and Vancouver, where the average home price often exceeds $1 million. This measure will allow more buyers to qualify for an insured mortgage with a down payment of less than 20%.

With this change, buyers in high-cost markets will need to put down 5% on the first $500,000 and 10% on the remaining portion above that. For a $1.5 million home, the minimum down payment would be $125,000, leaving a mortgage of $1.375 million. This policy will make it easier for buyers in cities where home prices have historically excluded them from insured mortgage programs.

Building on the Ability to Switch Lenders Without Requalifying

Building upon earlier changes introduced by the Canadian Mortgage Charter in Budget 2024, which allowed insured mortgage holders to switch lenders at renewal without requalifying under the stress test, the new mortgage changes further expand this flexibility. Now, as of December 15, 2024, all insured mortgage holders, including those purchasing preconstruction homes, can switch lenders without requalification. This provision is designed to promote greater competition among lenders and ensure that borrowers have access to more competitive rates without the barrier of undergoing a new stress test.

The original policy was seen as a way to empower insured borrowers with more options during renewal. By broadening its application to preconstruction homes and investors, the new changes enhance this flexibility for a larger segment of the market, according to the Edge Realty special report. Investors, in particular, stand to benefit by gaining easier access to more favourable terms when financing preconstruction properties.

This adjustment is intended to drive competitive pricing in the mortgage market, as borrowers will no longer be locked into their existing lender due to the requalification process. This increased competition could lead to better mortgage rates and conditions for both homeowners and investors, especially in a high-interest-rate environment.

Implications for Homeowners and Investors

Increased Access for First-Time Homebuyers

The extension of 30-year amortizations and the raised price cap will likely benefit first-time homebuyers by reducing their monthly payments and lowering the threshold for mortgage qualification. These changes are particularly relevant in markets where high prices have made homeownership difficult for younger buyers. The expansion of the amortization period from 25 to 30 years is seen as a way to provide more time for homebuyers to pay off their mortgage, which could help ease the financial burden.

More Opportunities for Investors

For real estate investors, the reforms introduce a new opportunity. Investors will now be able to access 30-year insured mortgages for preconstruction homes, which was previously limited to first-time homebuyers. The Edge Realty special report mentions that this could potentially boost investor participation in the preconstruction market, especially as sales of preconstruction condos have slowed in recent years due to rising prices. The increased availability of insured mortgages could encourage more investment in new builds, particularly in major cities where demand for rental units remains high.

Looking Forward

The government’s intention behind these reforms is to address the affordability crisis while supporting housing supply growth. The expansion of insured mortgages to a broader range of buyers, including investors, could stimulate more construction of new homes and condos, which aligns with the government’s broader goal of unlocking nearly 4 million new homes as part of its national housing strategy.

However, as these changes are implemented, the long-term impact on the housing market remains to be seen. While the goal is to make housing more affordable, it’s also possible that the increased purchasing power of buyers could drive up prices in some markets, particularly in the short term, or that other unintended consequences arise.