Canada’s new mortgage rules are stirring up conversations across the country, and for good reason. With changes like the extension of amortization periods from 25 to 30 years and the increase of the insured mortgage cap to $1.5 million, many Canadians are wondering how these updates will impact their dreams of homeownership.

Whether you’re a first-time buyer, a seasoned homeowner, or somewhere in between, understanding these changes is crucial. In this post, we’ll break down the good, the bad, and the challenges of these new rules.

What Are Canada’s New Mortgage Rules?

Let’s dive into some of the most impactful changes effective December 15, 2024:

1. Extension of Amortization Periods

The maximum amortization period for insured mortgages is increasing from 25 years to 30 years. This change applies to borrowers requiring high loan to value mortgage insurance in Canada and must satisfy the following requirements:

• The total loan to value is greater than 80%; and,
• The borrower is either a first-time homebuyer or purchasing a newly constructed home.

2. Reduced Minimum Down Payments and CMHC Insurance

The insured mortgage cap is rising from $1 million to $1.5 million. This change applies to all borrowers requiring high loan to value mortgage insurance in Canada and must meet the following criteria:

• The total loan to value is greater than 80%;
• The value of the eligible residential property against which the loan is secured must be less than $1.5 million; and,
• The down payment requirements for the loan are as follows:
  • 5% on the portion of a purchase price up to $500,000.
  • 10% on the portion of a purchase price between $500,000 and $1.5 million.

The Good: Opportunities and Flexibility

1. Longer Amortization Periods: More Breathing Room

One of the most talked-about changes is the extension of the maximum amortization period from 25 to 30 years for insured mortgages. This means lower monthly payments, which can be a game-changer for many families.

For instance, borrowing $700,000 at a 5% interest rate could reduce your monthly payment by $335.40—from $4,071.23 to $3,735.83—when opting for a 30-year term instead of 25 years. If you want to see how this change could impact your own budget, tools like wowa.ca’s mortgage calculator make it easy to crunch the numbers.

Why This Matters:

• Affordability: Lower monthly payments make homeownership more accessible, especially for younger buyers.
• Cash Flow: More manageable payments mean more room in your budget for other expenses or investments.

2. Higher Insured Mortgage Cap: Keeping Up with Real Estate Prices

With the average home price in many Canadian cities surpassing $1 million, the increase in the insured mortgage cap to $1.5 million feels like a much-needed update. This change allows more buyers to qualify for insured mortgages, which often come with lower down payment requirements.

Example: In Toronto or Vancouver, where homes routinely exceed $1 million, buyers can now aim for properties up to $1.5 million without needing a 20% down payment.

The Bad: Potential Drawbacks

1. Longer Amortization = Higher Interest Costs

While lower monthly payments sound appealing, extending your mortgage to 30 years means paying significantly more in interest over the loan’s life. Using the earlier example of a $700,000 mortgage at 5%, a 30-year term results in total interest of $644,900.52—$123,530.12 more than the $521,370.40 you’d pay with a 25-year term.

To put this into perspective, for a Canadian household with a median after-tax income of $60,800, this additional $123,530.12 could equate to more than 2 years of their entire income—assuming no other expenses. So, while the lower payments might ease your monthly budget, the long-term costs are worth careful consideration.

2. Higher Insured Mortgage Cap + Lower Down Payments = Higher Interest Costs

If you’re putting down less than 20%, you’ll need to pay for CMHC (Canada Mortgage and Housing Corporation) insurance, which protects lenders in case of default.

Impact on Buyers:
A smaller down payment can make it easier to enter the housing market, but it comes with the added cost of CMHC insurance, which typically ranges from 2.8% to 4% of the mortgage amount.

Example:
For a $700,000 home with a 6.429% down payment ($45,000), the mortgage amount would be $655,000. With a 3% CMHC insurance premium, you’d pay an additional $19,650, which is added to your mortgage balance.

This extra cost increases both your monthly payments and the total interest paid over the life of the loan. For a household earning the median income, repaying the $19,650 premium (plus associated interest) adds a noticeable financial burden to homeownership costs.

3. Rising Home Prices?

Some critics argue that these changes, particularly the higher insured mortgage cap, could drive up home prices even further. By enabling buyers to borrow more, the market could experience increased competition, making it harder for some to find affordable options.

The Ugly: Challenges for Specific Groups

1. First-Time Homebuyers

While the changes aim to help first-time buyers, they might unintentionally make it harder for them to enter the market. If home prices rise due to increased borrowing capacity, first-timers could face stiffer competition.

Example: Imagine a young couple in Ottawa saving for their first home. With the new rules, they qualify for a slightly higher mortgage, but so does everyone else. The result? Higher bidding wars and less negotiating power.

2. Affordability Still Out of Reach for Many

Even with these updates, the dream of homeownership remains out of reach for many Canadians. In cities like Toronto and Vancouver, a $1.5 million insured mortgage cap does little to make housing affordable for middle-income families. To qualify for a $1.5 million mortgage, a household income of $220,000–$240,000 per year is required—an income level achieved by only about 1% of Canadians.

Strategies to Navigate the New Mortgage Rules in Canada

Here are some tips to help you adapt:

1. Boost Your Down Payment

A larger down payment reduces the amount you need to borrow and can improve your chances of qualifying. Consider:

• Saving aggressively or tapping into programs like the First-Time Home Buyer Incentive and Credits, which can help offset some costs.
• Leveraging your RRSP through the Home Buyers’ Plan (HBP).

2. Improve Your Credit Score

Lenders offer better rates and terms to borrowers with higher credit scores. Work on:

• Paying bills on time.
• Reducing credit card balances.
• Avoiding new debt before applying for a mortgage.

Related content:

• How Bad is a 560 Credit Score and How to Improve?
• A 760 Credit Score: Good Enough? 7 Proven Tips to Boost It

4. Consider Smaller Markets

Housing prices in major cities like Toronto and Vancouver remain high. If remote or hybrid work is an option, explore more affordable markets where your budget stretches further.

What If You’re Struggling to Qualify?

If Canada’s new mortgage rules make it difficult for you to qualify, don’t lose hope—there are alternative strategies to explore:

• Co-Borrowing: Partner with a family member or trusted friend to combine incomes and boost your buying power.
• Rent-to-Own: Build equity gradually while renting, giving you time to save for a larger down payment.
• Reassess Your Budget: Identify areas to cut discretionary spending and redirect those funds toward your savings.
• Rethink Your Options: In some cases, renting might offer more financial flexibility and stability than owning.

Final Thoughts

Canada’s new mortgage rules bring both opportunities and challenges. While extended amortization periods and higher insured mortgage caps could make homeownership more accessible, they may also drive home prices higher and increase long-term costs. As always, it’s essential to do your research and make informed decisions that align with your financial goals.

So, what do you think of Canada’s new mortgage rules? Are they a step in the right direction, or do they miss the mark? Share your thoughts below — we’d love to hear from you!