New Mortgage Rules a Big Boost for Home Buyers

The ability to afford bigger-priced homes.

The $1.5M home-price limit for insured mortgages

The new limit for an insured mortgage brings the previous cap up by 50%, which has been in place since 2012 and hasn't kept up with the over 70% surge in home values since then.

Getting a mortgage covered by default insurance allows a smaller down payment because lenders will be compensated in the case of default — as little as 5% down, depending on the home price.

In expensive markets, like Vancouver and Toronto, a lot more homes are priced at $1M or more — and it's been a steep ask for first-time buyers to come up with the minimum 20% to buy them.

Here's how the home-price cap change will work for a minimum down payment:

• Up to $500K of the purchase price, a minimum 5% down payment is required (unchanged)
• From $500K all the way to home prices of $1.5M, a minimum 10% down payment is required (previously only extended to home prices up to $1M)
• For a $1.5M home price, a blended minimum down payment of 8.33% is required, much less than the previous 20% — helping first-time buyers access those homes sooner in their down-payment savings marathon

Note: The insurance premium tiers will likely change; stay tuned for updates.

The 30-year insured extension for first-timers and new builds

This amortization stretch to 30 years from the standard 25 years gives eligible first-time and new-build buyers the ability to both lower their mortgage payments plus improve their qualifying chances — with the potential to lower the federal stress test rate enough to qualify for their entry home.

(The stress test rate sees whether a mortgage applicant could afford their payments at either 5.25% or their contract rate plus 2.0%, whichever is greater.)

Could the eased rules spark a home-buying frenzy?

According to Dan Eisner, these rule changes might invite increased mortgage transactions over the next few months, especially with interest rates finally on their way down, unlocking about 10% or more of clients inclined to take advantage of these options sooner rather than later.

But over the longer haul, Dan believes the insured-mortgage rule improvements will simply help markets back to a sense of normal.

"The first-time buyer and new-build buyer segments have fallen off the housing radar a bit as of late — with participation rates far less than normals we've seen over the years, not including the pandemic flurry," Dan muses. "Keep in mind that nothing in housing seems 'normal' since the pandemic, but now some home buyers at least have more of a fighting chance to get a foot in the real estate door."

Listen to more of Dan's insights into these new rules on CBC's Calgary Eyeopener, September 17, 2024

What about handling the extra interest costs?

As soon as the new insured mortgage rules were announced, some experts cautioned about the potential for rising arrears and mortgage default if more homeowners take on higher mortgage balances, especially if mortgage rates increase at renewal.

Referring to True North's stats, Dan says that for the over 20,000 mortgages currently serviced through their CMHC-approved in-house lender, mortgage arrears are still considered very low, comprising less than 0.1% despite recent skyrocketing interest rates. "Even with our variable mortgage rate holders, we've seen all of our True North clients put their mortgages first when it comes to keeping up payments — funnelling money onto their mortgage principals as often as they can to decrease their interest costs, payments, and amortizations," he reports.

Dan suggests that "Canadians truly value their homes, and if these mortgage rules help them get into their first dream home, they'll have options to reduce their mortgage balances and amortizations later."

Help for the new-build conundrum?

Canada needs to build more housing. Yet, it's been demonstrated for years that it's not as easy as it sounds.

Construction labour shortages, government and city council red tape and taxes, sky-rocketing high interest rates, and inflationary effects on building supply costs are only some of the issues interfering with a 'build, build, build' actuality nationwide.

With new construction only accounting for up to 3 in 10 sales, an August housing start print that hit the lowest level since November 2023, and stagnant pre-sale condo markets in many city centres — with most developers needing at least 60 to 80% of pre-sales to obtain funding to complete a project — these insured mortgage rule changes for newly-built homes are designed to add buyer incentives.

And if the incentives also encourage more demand, incentivizing developers and builders to keep building, so much the better.

Bigger chances to buy, smaller rates to save.

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• Check out our First Time Home Buyer's Guide, with tips and insights to help you through your entire home-buying journey
• Have questions about these new mortgage rules? Apply online, drop by a store, or reach out to a friendly, highly trained True North broker (in your preferred language)