Understanding Canada’s New Mortgage Rules: What You Need to Know

On December 15th, Canada announced new mortgage regulations aimed at making homeownership more accessible. The country was already facing a high surge in its real estate prices along with shortage of housing. Therefore, these changes can benefit first-time home buyers and those looking at newly built homes greatly.

What are the Key Changes in the Mortgage Rules?

• Increased Mortgage Cap: The Canadian government has raised the price cap for mortgages insured against default from $1 million to $1.5 million. Previously, when first time homebuyers purchased a home that costed over 1 million dollars, they has to put a minimum of 20% of downpayment. Whereas, if the house costed less than 1 million dollars then one would only have to put as less as 5% down. However, with this adjustment, more people can qualify for mortgages with smaller down payments. This will provide a significant boost for buyers in high-cost urban areas like Toronto, where average home prices exceed the previous cap.

For example, with the new mortgage rules, you only need a $75,000 down payment to buy a $1.5-million home now, compared to the previous requirement of $200,000 for a mortgage that was not insured against default

• Extended Mortgage Amortization Periods: Previously only few homebuyers could avail the 30-year amortization periods. However, with the new rule change, this option is witnessing a broadened horizon. Now all first-time homebuyers, especially those who are purchasing newly built homes will be able to opt for 30-year amortization periods instead of the standard 25 years. However, it is important to note, that your insured mortgage and the loan-to-value ratio is 80% or higher. This means buyers can finance their home with only 20% down and still stretch their mortgage payments over 30 years.
• Refinancing for Home Improvements Homeowners with insured mortgages can now refinance up to $2 million to fund the construction of secondary dwelling units, such as laneway houses or basement apartments. This change is part of a broader strategy to increase housing density and supply without further sprawling into undeveloped areas.

Potential Impacts on Home Buyers and the Market

• Increased Buying Power: By allowing longer amortization periods and higher mortgage caps, these rules can enhance buying power. This means buyers who were previously sidelined by high prices might now be able to enter the market.
• More Interest Over Time: While longer mortgage terms reduce monthly payments, they also result in more interest paid over the life of the loan. Hence, buyers should consider this trade-off carefully.
• Market Inflation Risks: Some experts worry that increasing borrowing limits could lead to higher home prices, as more buyers may compete for properties they previously couldn’t afford. This could diminish long-term affordability despite the immediate benefits.

Local mortgage broker Mary Sialtsis supports the changes, suggesting they “open new opportunities for buyers.” However, critics like John Pasalis, president of Realosophy, argue that such policies might only offer a “short-term fix” and could lead to higher prices that negate the benefits of easier credit.

Advice for Prospective Home Buyers

If you’re considering buying a home under the new rules, it’s advisable to:

• Consult with a Real Estate Lawyer: Consulting with a professional lawyer well versed in real estate laws will allow you to fully understand the implications of longer amortization and higher borrowing limits on your financial health.
• Evaluate Your Long-Term Financial Goals: Consider how buying a home fits into your broader financial strategy. Ensure you can manage potential increases in interest payments over time.
• Prepare for Possible Market Fluctuations: Our lawyers advise that you stay informed about market trends that could affect property values and interest rates.

How can our Real Estate Lawyers help you?

It is evident that Canada’s new mortgage rules have been designed to make homeownership more accessible, especially in high-demand urban centers. It is crucial to understand these changes, so that potential buyers can better explore their options and make informed decisions. Yes, the new rules offer exciting opportunities, but they also require careful financial planning and consideration of future market conditions. If you are also thinking of buying a home under these new rules or refinancing your property, then connect with our Real Estate Lawyers to know more. Call us at 905-405-0199 today!