Canadian Mortgage Rule Changes

There has been some major announcements by the government over the last few weeks regarding Canadian Real Estate and mortgage rules, and I thought it would be a great idea to review those changes. Let's dive in!

1. The first change that was announced was to allow 30 year mortgage amortization periods for individuals starting on Dec. 15th, 2024. Earlier in the year the Canadian government changed the rules for First Time Home Buyer's to allow them to buy new-construction properties with 30 year amortizations. Previously, a 30 year amortization period on a mortgage was only allowed when the down payment was greater than 20%.  As of September 16th, they've expanded those rules and have allowed all First Time Home Buyer's to buy their first property (regardless of if it is new build or resale) with a 30 year amortization, even with a down payment as low as 5%. 

2. The second change they made was was increasing the price cap on insured mortgages from $1M up to $1.5M. What does this mean? Previously, if you were a first time home buyer, you could buy a house with a down payment as low as 5% on a property, and the CMHC (Canada Mortgage and Housing Corporation) could insure the mortgage. There is of course a cost to this, and the insurance cost is added onto your initial mortgage balance. Since the government acknowledges that house prices are now so expensive, they've increased the price cap for starter homes up to $1.5M that can qualify as an insured mortgage. 

3. The third change is that you no longer have to undergo a stress test when switching lenders on mortgage renewal. Prior to this change, whenever you were renewing your mortgage, your current lender would send you a notice of what the new rate would be. If you didn't like the rate, you could always shop around, but that would require you to requalify under the stress test at a new lender. If you lost your job, or increased your debt load through a car purchase, you might not be able to qualify, and hence your current lender could increase their lending rates on you knowing you might not be able to shop around. 

My opinion is that with the third change the government is making is actually making a good move. If you've been paying your mortgage diligently, upon renewal a change in you qualifying for the stress test should not be a prerequisite to shopping around for a better rate.

However, with regards to the first two changes, ultimately I don't think this does anything for the millennial or Gen Z generation looking to buy their first home. By increasing the amortization period up to 30 years for all first time home buyers, all they are doing is spreading out the debt over a longer period of time. This actually increases demand pressure on the housing market, and creates an even longer period of debt for the younger generation. The same can be said for increasing the price cap on insured mortgages - the government is telling young Canadians that a starter home costs up to $1.5M! I think the next generation is looking for cheaper housing, and these new changes won't be helping them.

Best,

Jon

Jonathan Adomait
Financial Planner | CFP, CIM, B.Eng