The Canadian mortgage landscape is about to undergo some significant changes that could impact first-time homebuyers and those renewing their mortgages. With updates announced by both the government and the Office of the Superintendent of Financial Institutions (OSFI), these new rules, effective December 15, 2024, offer opportunities for buyers in higher-price markets and make renewing mortgages easier. Here’s a breakdown of what you need to know.
1. Higher Purchase Price for Insured Mortgages: $1 Million to $1.5 Million
Starting December 15, 2024, the maximum purchase price for homes with insured mortgages is increasing from $1 million to $1.5 million. This change is significant for first-time homebuyers and those looking to buy in competitive urban markets like Toronto and Vancouver, where home prices often exceed the previous cap.
For those unfamiliar with insured mortgages, they are typically used when the buyer has less than a 20% down payment. With the new rules, buyers can qualify for high loan-to-value mortgage insurance as long as their loan-to-value ratio is at least 80%. You can read more about insured mortgages in this short article.
What Does This Mean ?
If you're a first-time buyer, you'll now be able to purchase a home priced up to $1.5 million with a smaller down payment. The down payment structure remains unchanged for homes under this new cap:
- 5% for the first $500,000 of the purchase price, and
- 10% for the portion between $500,000 and $1.5 million.
For example, under the new rules, you can now buy a $1.5-million home with just a $125,000 down payment, compared to the $300,000 required under current uninsured mortgage rules.
However, qualification also remains the same, which means that even though the maximum price has increased for an insured mortgage, borrowers still need to be able to support the mortgage using the GDS and TDS ratios of 39/44 as per insurer guidelines. See our earlier article about GDS and TDS for more information.
2. 30-Year Amortization Period for Insured Mortgages
Another change effective December 15 is the expansion of 30-year amortization periods for insured mortgages. Previously, 30-year amortizations were only available for uninsured mortgages. Now, first-time homebuyers and those purchasing new builds—regardless of whether they are first-time buyers—can take advantage of this longer repayment period if their loan-to-value ratio is 80% or higher.
Who Qualifies as a First-Time Homebuyer?
- Never Owned a Home: You’ve never purchased a home before.
- Four-Year Gap: You haven’t owned or occupied a principal residence in the last four years.
- Relationship Breakdown: If you’ve recently experienced a breakdown in a marriage or common-law relationship, you may qualify under the Canada Revenue Agency’s guidelines for FTHB.
This extended amortization can help lower monthly mortgage payments, which can be especially beneficial for buyers in expensive markets.
3. Easier Mortgage Renewals: OSFI’s Removal of the Stress Test for Straight Switches
Starting November 21, 2024, OSFI is removing the requirement for lenders to apply the Minimum Qualifying Rate (MQR) for straight switches of uninsured mortgages. Previously, borrowers had to requalify with a potential new lender using the MQR, which is calculated as the interest rate + 2%. This limited borrower’s ability to shop around at renewal as they didn’t need to qualify with their current lender and may not have qualified using the MQR with a new lender, even if the new interest rate was lower.
The stress test (explained in a quick video), introduced in 2018, ensured that borrowers with uninsured mortgages (those with a down payment of 20% or more) could handle potential future rate increases. However, under the new rules, this will no longer apply when switching lenders for an uninsured mortgage, as long as the loan amount and amortization period remain the same. This is what a mortgage switch is – not requiring any more money and keeping the remaining amortization period the same.
What’s the Benefit?
If you’re looking to switch lenders at renewal, you won’t have to prove you can afford your mortgage at a higher qualifying rate. This makes it easier to shop around for better rates and terms without the added hurdle of requalifying.
These changes could provide more flexibility for first-time homebuyers and make mortgage renewals smoother, especially in high-cost housing markets. Stay informed and consider booking a strategy call with me to explore how these new rules may impact your buying or renewal strategy.
Learn More
If you're curious about how these new regulations affect you in your home purchase of mortgage renewal, reach out! I am happy to schedule a call!
You can also learn more at any of the following resources:
- This Government of Canada Article announcing the new mortgage changes
- A technical resource on understanding the new downpayment tiers
- A plain-language article from the CBC discussing the changes to stress testing requirements.
