New federal mortgage rules set to boost homeownership affordability

In a bid to open access and tackle the housing affordability crisis that has pushed Canadians across the country out of reach of homeownership, the federal government announced on Sept. 16, that it will increase the price cap on insured mortgages from $1 million to $1.5 million and will expand eligibility for 30-year mortgage amortizations to a greater number of Canadians. These changes will be effective as of Dec. 15, 2024.

Insured mortgages (high-ratio mortgages) are for borrowers who are purchasing an owner-occupied property and putting less than a 20 per cent down payment. The borrowers must pay for mortgage default insurance, which is included in the mortgage amount borrowed. Currently, any properties valued over $1 million cannot be insured and borrowers are required to put a down payment of at least 20 per cent. In addition, the current amortization period allowed is up to 25 years.

Eligibility expanding to a 30-year mortgage amortization for all first-time homebuyers and all buyers of newly built homes

This measure will apply to borrowers requiring high loan-to-value mortgage insurance in Canada and must satisfy the following requirements:

• The total loan to value is 80 per cent or more and;
• The borrower is either a first-time homebuyer or purchasing a newly built home.

As announced in June of this year, to be considered a first-time homebuyer, a borrower must meet one of the following criteria:

• The borrower has never purchased a home before.
• In the last four years, the borrower has not occupied a home as a principal place of residence that either they themselves or their current spouse or common-law partner owned.
• The borrower recently experienced the breakdown of a marriage or common-law partnership. On this point, the regulations will follow the approach that the Canada Revenue Agency has taken with respect to the Home Buyers’ Plan.

To be considered a newly built home, it must not have been previously occupied for residential purposes. This requirement is not intended to exclude newly built condominiums, where there has been an interim occupancy period.

Increasing the $1 million price cap for insured mortgages to $1.5 million

This measure would apply to all borrowers requiring high loan-to-value mortgage insurance in Canada and must satisfy the following requirements:

• The total loan to value is 80 per cent or more
• The value of the residential property must be less than $1.5 million
• The down payment requirements for the loan are as follows:
  – Five per cent on the portion of a purchase price up to $500,000.
  – 10 per cent on the balance between $500,000 and $1.5 million.

For example, if a borrower is purchasing a property for $1.2 million after Dec. 15, the down payment required will be $25,000 for the first $500,000 (five per cent) and $70,000 for the balance of the $700,000 (10 per cent). The total down payment required would be $95,000, compared to the current down payment requirement of $240,000.

Finance Minister Chrystia Freeland said the new measures would “put the dream of homeownership in reach for more young Canadians,” and first-time buyers would be “in a stronger position” after the adjustments, also highlighting the prospect of an increase in homebuilding as a result.

These changes, along with a trend of interest rate cuts, could prove significant for first-time homebuyers and expand their purchase eligibility for a far greater number of homes across British Columbia.