Empowering Homebuyers: The Latest Reforms in Canada's Mortgage Landscape

Recent mortgage reforms in Canada aim to address the challenges of homeownership by making financing more accessible and affordable for prospective buyers. These reforms include measures such as eliminating the stress test for insured mortgages, increasing the maximum amortization and amount of an insured mortgage, and reducing the minimum down payment required.

In our latest issue of Our Two Cents, we delve into the four reforms announced recently.

30-year mortgage amortizations for all first-time homebuyers

Within the 2024 Federal Budget, beginning December 15, 2024, 30-year mortgage amortizations are available for first-time homebuyers purchasing new builds, including condos.

Expanding on the first-time homebuyer, effective December 15, 2024, to reduce the cost of monthly mortgage payments, all first-time buyers and all new construction purchases will be available for 30-year mortgage amortizations.

Impact on monthly payments

‘A buyer financing a home at the average Canadian price of $649,096 over 30 years at 4.09 per cent interest would have monthly payments of $2,895 instead of $3,198 with a 25-year mortgage, according to rates.ca. Over five years, they would pay $18,172 less with the 30-year amortization. Their balance owing on the end of five years (when they would need to renew) would be $545, 249?—?$20,107 more than if they had amortized over 25 years.’1

Increasing the amount of an insured mortgage

To reflect current housing market realities and help more Canadian qualify for a mortgage with a down payment below 20 percent, the $1 million price cap for insured mortgage will be increased to $1.5 million.

Smaller down payments on properties of $1 million or more

Buyers will be required to put down 5 per cent on the first $500,000 of purchase price and 10 per cent on the portion between $500,000 and $1,500,000. On a home that costs $1 million, the minimum down payment will be $75,000 versus $200,000 under current rules.

Elimination of the stress test when switching lenders

The latest measures announced allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test. Not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians with insured mortgages to switch to the best offer.

As the current process works, borrowers must pass the federal mortgage stress when they apply for the initial mortgage.? The stress test should prove the borrower has enough income to cover their payment at an interest rate that is two-percentage-points higher than the actual contract.

At the end of the term, if the borrower wants to switch to a different lender, they must pass the stress test again as the borrower is new to the lender.

Mortgage rates have doubled to over five percent and borrowers have had to prove they could afford the payments with an interest rate of 7 percent. This has made it difficult for uninsured borrowers to pass the stress test.

By streamlining the mortgage approval process and introducing new financial assistance programs, these initiatives are a crucial step toward fostering greater equity and home ownership and ensuring that more families can secure stable housing.

1.?www.financialpost.com/real-estate/mortgages/what-new-mortgage-rules-mean-to-homebuyers-banks-real-estate