New Canadian Mortgage Rules 2024: What You Need to Know

The Canadian government has announced significant changes to mortgage rules for Canadians, with the changes scheduled to come into effect in December of 2024. Here's what these changes mean and how they could affect you.

Key Changes

1. Higher Insured Mortgage Cap: Previously, if you wanted a mortgage with a down payment of less than 20%, your home had to cost under $1 million to qualify for mortgage insurance. Now, the government is raising this limit to $1.5 million, effective December 2024. This reflects the rising cost of homes in cities like Toronto and Vancouver and will help more people qualify for insured mortgages with lower down payments.
2. 30-Year Amortization for First-Time Buyers and New Builds: First-time homebuyers and those purchasing newly built homes will now have the option to stretch their mortgage payments over 30 years instead of the standard 25 years. This change is intended to reduce monthly payments and ease the burden on buyers entering the market.
3. Expanded Opportunities to Switch Lenders: The new rules also allow insured mortgage holders to switch lenders at renewal without having to undergo another stress test, opening up competition and making it easier for Canadians to find better mortgage deals.

Why the Changes?

Finance Minister Freeland says that these changes are part of a broader effort by the government to address Canada's housing affordability crisis. Rising home prices and interest rates have made it increasingly difficult for young people and first-time buyers to enter the market. By increasing the insured mortgage cap and introducing longer amortization periods, the government hopes to unlock more opportunities for Canadians to buy homes, especially in high-cost areas. While interest rates have been coming down of late, elevated home prices have been sticky because of strong demand from newcomers to Canada and a lack of new supply.

What This Means for Homebuyers

1. Lower Monthly Payments: A longer amortization period can lower your monthly mortgage payments, although it means paying more in interest over the life of the loan.
2. More Affordable Down Payments: The increased cap on insured mortgages allows more buyers to enter the market with a smaller down payment. Previously, to buy a $1.5 million dollar home, you would have needed a down payment of $300,000. Once the new rule goes into effect, you might be able to purchase a home with as little as $75,000 down.
3. Increased Competition Among Lenders: With the ability to switch lenders more easily at renewal, homeowners could benefit from better interest rates. The stress test on mortgage switches was a major impediment to homeowners when their mortgages came up for renewal, which created an unfair advantage to the incumbent lender. As a result, mortgage renewal offers have not been at the lower rates often available on the market.

These reforms represent significant changes to Canadian mortgage rules, and they come as part of the government's broader strategy to tackle housing shortages and affordability issues​(CTV News)​(Canada.ca). While these changes will certainly affect high-cost markets like BC and Ontario, they’re also set to impact homebuyers and homeowners across Canada, including the prairies. Whether you're looking to buy your first home, invest in new builds, or renew your mortgage, these new rules aim to provide more flexibility and accessibility in various housing markets.

Keep an eye on these changes as they roll out in December, especially if you're planning to enter the market or renew your mortgage soon.

Opinion on the Mortgage Changes

1. Higher cap on insured mortgages. This feels like vote buying for the Federal Liberals who are tanking in every poll, and were last reported to be in 4th place nationally behind the Conservative, Bloc, and NDP parties. This will be helpful in Ontario and BC for home buyers who are priced out of that market and who want to stay there. This will likely create more demand where less is needed, and may push prices even higher in some markets. On the other hand, I was personally never a fan of the cap in the first place, because it discriminated against regional housing markets and favored others, due to the wide disparity of prices in each market.
2. 30 year amortization. The theory on this is that it will help spur new supply because new homes will be more attractive than existing stock, and by creating an advantage for new homebuilders, they will be more likely to build more homes. Time will tell if this strategy will work. If existing homeowners sell their homes and buy new ones, then more affordable used homes may be available for other buyers. More supply is more supply, and we need it. For first time home buyers, I think eliminating the stress test would be far more effective. For example:
   ​A $400,000 mortgage at today’s 4.24% 5 year fixed rate, over 25 years, would have a monthly payment of $2,156.44. Over 30 years, that payment would drop to $1,956.77 - a savings of almost $200 per month. Total interest paid over 25 years would be $256,934 - assuming the interest rate doesn’t change. Over 30 years, however, total interest paid would be $304,440.72 - nearly $50,000 more! (not including the effects of inflation). Thankfully, most homeowners can shorten their amortization period if they choose, at a later date, so it doesn’t have to be a life sentence. (All figures derived from the First Foundation Canadian Mortgage Calculators)
3. The change which allows homeowners with existing mortgages to switch / transfer their mortgage at renewal, without having to requalify based on the stress test / MQR, is the best change in the bunch. This corrects a major flaw in the original Stress Test formula, which prevented people from shopping for a better deal at renewal, and gave an unfair advantage to incumbent mortgage lenders, who knew that it would be difficult for many mortgagees to switch. As a result, many mortgage renewal offers from banks and other lenders were not very competitive - offering a “take it or leave it” taste in our mouths and driving interest costs up unnecessarily for Canadian homeowners. This change levels the playing field, increases competition, and will lower interest costs when Canadians are hurting. This is a great change, in our opinion, and will really increase competition in 2025 when a huge number of mortgages come due for renewal.

For a more in-depth discussion, watch our full 30-minute roundtable with CEO Gord McCallum, Jason Dodd, and LeeAnn Roz on YouTube

In summary, the changes should, at least temporarily, increase selection for buyers, reduce payments (but not interest) for first time buyers, and most importantly, increase competition and lower rates for mortgage renewals. While none of these changes make any attempt to address demand shock from new immigrants to the country, or address regional disparities, or dramatically increase supply (though it may help), they are thoughtful and well intentioned. The 30 year change and higher limit on insured mortgages could very well increase demand at a time when that may not be the best policy. Hopefully they have the desired effect and make homeownership more affordable for Canadians. Time will tell.

Have questions? Reach out to one of our mortgage experts for a personalized consultation on how these changes might affect your plans.