Housing affordability is a nationwide concern, especially for first-time home buyers. To alleviate this ongoing problem, the federal government recently announced significant changes to the mortgage insurance system. While there are many opinions on the politics behind these interventions, we’ll steer clear of that (because otherwise we’d be here all day) and just cover the policy.
What are these changes, and how will they improve affordability?
- CMHC-Insured Mortgage Limit
- Extension of 30-year Amortization
CMHC-Insured Mortgage Limit
The Canada Mortgage and Housing Corporation (CMHC) mortgage insurance limit has been raised from $1M to $1.5M.
What this means:
Buyers with less than 20% of a down payment can now qualify for mortgage insurance for homes up to $1.5M (the previous cap was $1M). This gives home buyers with smaller down payments access to more properties in markets where prices have risen sharply. Many were expecting an increase (maybe to $1.25M) but not this bold, so the policy is much more aggressive than anticipated. This likely will make the market between $1M and $1.5M more competitive than we’d previously seen.
Example:
A first-time home buyer wants to purchase a home listed for $1.3 M. They don’t have the previously required $260,000 for a 20% down payment for a home listed at this price. As of December 15, 2024, they won’t need the minimum $260,000 and can purchase their new primary residence with $105,000. This amount is 5% of the first $500,000 ($25,000) + 10% ($80,000) of the remainder ($800,000).
Extension of 30-year Amortization
The federal government has expanded the program to all first-time homebuyers after extending 30-year amortization periods to mortgages on new builds earlier this year. Previously, the amortization period (the time it takes to pay off your mortgage) for first-time homebuyers was 25 years.
What this means:
An ease on the weight of the financial burden for more homebuyers on each regular mortgage payment. For example, first-time homebuyers and all buyers of new builds can spread lower payments over a longer period (up to 30 years). While the monthly payments will be lower during the 30-year period, total interest costs will be higher.
Example:
Amortization Period: 25 years
Fixed Mortgage Rate: 5%
Mortgage amount: $700,000
Monthly payment: $4,071.23
Amortization Period: 30 years
Fixed Mortgage Rate: 5.0%
Mortgage amount: $700,000
Monthly payment: $3,735.83
Both changes are effective as of December 15, 2024.
As interest rates drop and the media coverage continues to become more favourable, this policy is likely to increase the rate that the market will heat up. Given the current levels of supply, there’s likely to be a discrepancy between how the condo and freehold market will respond in the short term. If you would like to chat further about your unique situation and goals, please reach out.
Are you ready to move to the next stage? Let’s chat. Send me an email (hillary@hillarylane.ca) or text/phone (416-882-4707).
Photo by Jakub Żerdzicki on Unsplash
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