New Mortgage Insurance Reforms: Let’s Clear the Confusion

Starting December 15, 2024, the Canadian government is making big changes to mortgage rules. These changes are meant to help more people buy homes by giving them more flexible payment options and increasing the price limits for insured mortgages.

There has been some confusion around these reforms, the biggest misnomer being that they are only for First Time Buyers. 

In fact, these changes do not apply only to first-time buyers; they apply to anyone who qualifies for an insured mortgage, with one exception regarding amortization on resale homes.

Let’s break down these new rules in simple terms and review some examples.

Key Changes

Higher Price Limit for Insured Mortgages

Currently, insured mortgages are only available for homes priced up to $1 million. Starting on December 15th, 2024, this limit will increase to $1.5 million. This means more people can buy homes with less than 20% down.

Minimum Down Payments

For homes priced up to $1.5 million, you will need:

• 5% down on the first $500,000
• 10% down on the remaining amount above $500,000

30-Year Amortization for First-Time Buyers on BOTH New Build AND Resale

If you’re a first-time homebuyer, you can now spread your mortgage payments over 30 years on either New or Resale homes.

25-Year Max Amortization for NON-First time Home Buyers on Resale Homes

This is the key difference where NON-first timers are treated differently. While 30-year amortization is available on new builds for non-first-timers, resale homes will only have a maximum 25-year amortization.

Example 1: First-Time Buyer Purchasing a Home (Resale or New Build)

Let’s take Finn and Farrah; first-time homebuyers looking to purchase a home priced at $1.2 million. Whether they buy a resale home (a home that’s been lived in before) or a new build (a brand-new home), they can now get a 30-year amortization. This will reduce their monthly payments compared to the standard 25 years. Here’s how the numbers work for these first-timers:

(*For all the examples here, we will use a 4.5% interest rate compounded semi-annually)

• Down payment:
  • 5% on the first $500,000 = $25,000
  • 10% on the remaining $700,000 = $70,000
  • Total down payment = $95,000
• Loan amount: $1,105,000 (before adding mortgage insurance)
• Mortgage insurance premium: 4% of loan amount = $44,200
• New loan amount with insurance: $1,149,200

Monthly Payments

• 25-year amortization: $6,360.51
• 30-year amortization: $5,794.45

Finn & Farrah would save about $566.06 per month by choosing the 30-year amortization.

Example 2: A Couple Selling and Buying a Resale Home (NOT First-Timers)

Rob and Rachel are selling their current home worth $900,000 and are looking to buy a resale home priced at $1.3 million. They will not have 20% down, but with the new rules, they can get an insured mortgage with a smaller down payment.

One key difference for this couple is that, although they qualify for a smaller down payment, they cannot access the 30-year amortization on this resale purchase. If they want a 30-year amortization, they would need to buy a new build (see example 3 below).

• Down payment:
  • 5% on the first $500,000 = $25,000
  • 10% on the remaining $800,000 = $80,000
  • Total down payment = $105,000
• Loan amount: $1,195,000 (before adding mortgage insurance)
• Mortgage insurance premium: 4% of loan amount = $47,800
• New loan amount with insurance: $1,242,800

Monthly Payments:

• 25-year amortization: $6,878.56
• Since this is a resale home and they are not first-time buyers, the 30-year amortization is not available.

Example 3: A Couple Selling and Buying a New Build

Now, let’s take the same NON-first-timer couple, Rob & Rachel, but this time they are buying a new build for $1.3 million. Since they are purchasing a new construction, they qualify for the 30-year amortization, even though they are not first-time buyers.

The loan details will remain the same as the above Example 2, except for the available amortization

Monthly Payments:

• 25-year amortization: $6,878.56
• 30-year amortization: $6,266.39

The couple would save about $612.17 per month by opting for a 30-year amortization on the new build.

Here’s a summary of the new rules and how they apply to different types of buyers:

These new reforms aim to make homeownership more accessible for Canadians by offering more flexible payment options and increasing the price cap for insured mortgages. However, it’s important to remember that while longer amortizations reduce monthly payments, they also mean paying more interest over time. 

If you have questions about how these changes might affect you, speak with a mortgage professional to find the best plan for your situation.