The Liberal government proposed new mortgage regulation changes which will occur on December 15, 2024. Previously, first time buyers could put the minimum down payment(less than 20% down payment) on a home up to $1 million purchase price at the maximum. With the new proposed changes coming in to play, first time buyers will be able to put the minimum down payment on a home up to a purchase price of $1.5 million.
Alongside of this, first time home buyers can take a 30 year amortization on resale properties too, not just new builds, when putting less than 20% down payment. Previously, they could only go up to a 25 year amortization when taking a mortgage with less than 20% down payment, unless it was a new build(pre-construction sale from a builder).
The changes could be big for first time buyers wanting a higher purchasing power, as well as wanting to purchase a more expensive home and not being limited to under $1 million on the price, just because they do not have $200,000+ saved up for the 20% down payment required currently required on all homes over $1 million in price.
Let’s talk about the reality of having a mortgage insured at $1.4 million (or even $1.5 million). Sure, the government has raised the insured mortgage limit from $1 million to $1.5 million to help more Canadians in high-priced markets. But here’s the thing: it’s still not exactly easy to qualify, and the insurance premiums can be a serious burden.
The Hefty Premium and Income Requirements
First, let’s break down the insurance premium. If you’re going for a mortgage at this level, the premium isn’t going to be small. Let’s take a $1.35 million mortgage as an example. With a 10% down payment, the insurance premium could be as high as $41,850, which gets added onto your mortgage balance. This assumes the insurance premiums will stay the same percentage-wise as they currently are (which could change when these new rules take effect). So now, instead of a $1.35 million mortgage, you’re looking at a balance of around $1,391,850—ouch!
And then, to qualify for this kind of mortgage, you’ll need an annual family income of over $310,000. That’s a high bar! At that point, it might be worth considering whether it makes sense to save up for a 20% down payment to avoid the insurance premium altogether.
Who Benefits from This?
These changes might benefit some buyers—particularly those with higher incomes who want to enter the market sooner but don’t have the full 20% down payment saved up. It gives them more options in cities where homes can easily exceed $1 million.
However, for many first-time buyers, this setup can be pretty challenging. The insurance premium and income requirements make it tough to jump into homeownership at these price levels, and some may decide it’s better to wait and save up for a larger down payment instead of dealing with the added costs.
A Different Minimum Down Payment?
Another thing to consider is that the down payment structure could be adjusted. Right now, the minimum down payment for an insured mortgage is 5% of the first $500,000 of the purchase price, and 10% of any amount over $500,000. But with the new insured mortgage limits, the sliding scale for down payments could change. So far, we haven’t seen details on whether this will stay the same or be updated, but it’s something to keep an eye on.
A change in this structure could impact how much cash buyers need upfront, especially in markets where homes frequently sell for more than $1 million. Stay tuned!
30-Year Amortizations—A Small Relief
Another important part of these new rules is the introduction of 30-year amortizations for first-time homebuyers. This was previously only available for newly built homes, but now it’s an option for all first-time buyers. A longer amortization period can help reduce monthly payments, which is a big deal in today’s market.
For example, on a home priced at the national average of $649,100, a 30-year amortization could save you about $300 per month compared to a 25-year term. For some buyers, this makes homeownership more affordable and achievable.
How These Changes Impact Insurable Mortgage Rates
The increase in the insured mortgage limit also affects insurable mortgage rates. Until now, lenders could only back-end insure homes that were originally bought for less than $1 million or were purchased before October 14, 2016. But with the new rules, homes valued up to $1.5 million may now qualify for insurable rates.
So, what does this mean for you? Well, insurable rates are usually lower than non-insurable ones. For example, the best insurable rate right now for a 5-year variable is 5.25%, whereas a non-insurable rate is around 5.55-5.6% for the same term. This difference can have a major impact on your monthly payments and the overall cost of your mortgage.
The Bottom Line
While the new mortgage rules aim to help more Canadians access housing, not everyone will benefit equally. If you’re looking at a mortgage of $1.4 million or more, be prepared for a high insurance premium and steep income requirements. On the flip side, if you’re a first-time buyer, the new 30-year amortization option might make things a bit easier on your wallet.
And with the new insurable mortgage limits, even buyers of more expensive homes could see lower rates, which is a win in this high-interest-rate environment. But at the end of the day, the right mortgage strategy depends on your personal financial situation. It’s always a good idea to talk to a mortgage broker to explore your options and figure out what works best for you.
