Canada is rolling out additional reforms to help more Canadians achieve homeownership and tackle housing affordability challenges. On December 15, 2024, two significant updates to mortgage rules, announced by Deputy Prime Minister and Finance Minister Honourable Chrystia Freeland, will come into effect as part of the Canadian Mortgage Charter introduced in Budget 2024.
What’s Changing in Canada’s Mortgage Rules?
1.Easier Lender Transfers for Renewals: Homeowners with uninsured mortgage loans can now switch lenders at renewal without undergoing a second mortgage stress test. This change enables borrowers to find better terms with a new lender without needing a second approval, provided the loan amount and amortization schedule remain unchanged. It aims to shield borrowers from rising interest rates and minimize default risk, offering more financial flexibility.
2.Extended Amortization for New Home Buyers: As of August 1, 2024, the maximum mortgage amortization period has been extended by five years. Initially available only to first-time buyers, this extended period now includes all buyers of newly built homes, encouraging investment in new properties. This policy supports the government’s plan to build 3.87 million new homes by 2031, stimulating construction and easing supply pressures.
3.Higher Mortgage Cap for Insured Loans: To address down payment challenges, the mortgage insurance threshold has been raised. Previously, buyers needed a 20% down payment on homes valued at $1 million or more; this limit has now increased to $1.5 million. This adjustment reduces upfront costs, making higher-priced homes more accessible to buyers struggling to save for larger down payments in today’s market.
Additional Measures to Boost Affordability
The Canadian government is reinforcing these changes with additional tools to support homebuyers:
1.Tax-Free First Home Savings Account: A new account allows Canadians to save tax-free for their first home.
2.Enhanced Home Buyer’s Plan: The withdrawal limit has been raised by $25,000, allowing first-time homebuyers to access up to $60,000 tax-free from their RRSPs.
Important Considerations
While these reforms make monthly payments more manageable, extending amortization can result in higher overall interest costs across the mortgage’s lifespan. Buyers should carefully weigh these trade-offs to make financially sound decisions.
