Changes for Insured Mortgage Rules December 2024
On September 16, 2024, the Canadian government announced a series of insured mortgage rule reforms as part of their ambitious housing plan . These new rules around insured mortgages are set to launch in December of this year, but many Canadians are still unaware of what they entail. In this guide, we will take a detailed look at what changes you can expect in the coming months, and how they may impact the broader Canadian real estate market.
Key Changes to Expect in December 2024
Historically, 30-year mortgages were reserved for buyers with a down payment of at least 20%, or for those who were both first-time homebuyers and who were buying new construction. As of December 15, 2024, all first-time homebuyers, as well as anyone purchasing new construction, will be eligible for an insured mortgage with a 30-year amortization.
Another key change is that the price cap for insured mortgages will increase from $1 million, to $1.5 million. This means that homes valued up to $1.5 million are now eligible for a 5% down payment (through an insured mortgage), whereas only homes under $1 million were previously eligible. The median price of a home in Toronto is currently $1.2 million, and approximately 20% of all homes on the Canadian real estate market are priced between $1 million and $1.5 million.
Benefits and Drawbacks of the New Rules
With the onset of the new changes fast approaching, many Canadians are left to wonder whether these new policies will help or hurt the housing market. Here are some of the potential benefits and drawbacks of the new rules:
Benefits:
- Increased Accessibility: now that Canadians can put a 5% down payment on a $1.5 million home, prospective homebuyers are able to qualify for more homes than before . For example, a couple that would have needed to raise a $200,000 downpayment for a $1 million home, now only needs to raise $60,000 for a $1.4 million home.
- Smaller Monthly Payments : In general, spreading mortgage payments over a longer amortization period will decrease the amount of money paid each month. This can further help to increase accessibility
- Increased Sales: by creating these additional incentives for first-time homebuyers and new construction home supply, the Canadian government hopes to jumpstart the market once again and increase the number of home sales over the next couple of years.
Drawbacks
- Greater Interest Expenses: while a longer amortization period can reduce the size of each monthly mortgage payment, it will result in more debt in the long-run, due to increased interest expenses. For example, on a $500,000 home, it is estimated that a 30-year amortization period can cost up to $100,000 more than a 25-year period over the lifetime of the loan. Borrowers will also be in debt for longer, and build their equity up more slowly than before.
- Slow Equity Growth: when you increase the amortization period of a mortgage, you decrease the speed at which you can grow equity in the home. Given the increased interest expenses overall, and the smaller monthly payments, a longer amortization period may reduce the amount of principal you are paying down relative to the total value of your payments.
- Increased Home Prices: if the updated policies are successful in increasing real estate market activity, this will likely continue to push prices upwards over the next couple of years. While this can be a good thing for existing homeowners, it will create additional barriers for new homebuyers over the next few years, and trap an increased number of buyers in greater amounts of debt than before.
Tips for Prospective Borrowers
If you are thinking of getting involved in the real estate market in the near future, it is important to fully understand how the new mortgage policies will affect you, and how you can take full advantage of them. Working with a Clover Mortgage broker can be a great way to get personalized advice that aligns with your current financial status and goals. An insured mortgage could be a great asset to your homebuying journey. Alternatively, you may not need an insured mortgage at all. Contact us today to book your free consultation and get started on figuring out what works best for you!
FAQ
What is the minimum downpayment on a Canadian mortgage?
In Canada, the minimum down payment for homes valued up to $500,000 is 5%. For homes between $500,000 and $1 million, the down payment is 5% of the first $500,000 and 10% of the remaining amount. Homes over $1 million require at least a 20% down payment. First-time buyers making the minimum down payment might be restricted to a 25-year amortization, as a 30-year amortization requires at least a 20% down payment.
What is a 30-year amortization in Canada, and how does it benefit first-time home buyers?
A 30-year amortization refers to a mortgage repayment schedule spread over 30 years, allowing borrowers to make smaller monthly payments compared to shorter amortization terms. In Canada, most lenders typically offer a maximum amortization of 25 years for loans with less than a 20% down payment. However, a 30-year amortization may be available for those who make a down payment of 20% or more, making home ownership more accessible, especially for first-time buyers who may need smaller monthly payments to manage other financial commitments.
Where can I find a 30-year amortization table, and how does it help in planning my mortgage?
A 30-year amortization table breaks down each payment over the 30-year term, showing the principal and interest amounts paid monthly. These tables are widely available online or through mortgage calculators provided by banks and financial institutions. They help prospective homeowners see how much they’ll pay over time and understand how different payment amounts impact principal and interest, which can be especially valuable for budgeting long-term as a first-time buyer.
