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(October 5, 2024)

On August 1, 2024, the Government of Canada implemented significant reforms to its mortgage qualification process to help more Canadians, particularly Millennials and Gen Z, achieve homeownership. One of the most notable changes is the introduction of 30-year insured mortgage amortizations for first-time homebuyers purchasing new builds (and more recently an expansion of the reform to include all homebuyers as of December 15, 2024). As part of a broader housing affordability plan, these reforms aim to reduce monthly mortgage payments and encourage the construction of new homes. Additional measures, including raising the insured mortgage cap and improving lender competition at mortgage renewal time, further enhance the accessibility and affordability of homeownership. Below is a summary of these key policies and their impact on Canadian homebuyers.

30-Year Mortgage Amortizations for First-Time Homebuyers and New Builds:

As of August 1, 2024, first-time homebuyers can access 30-year amortizations for insured mortgages when purchasing new builds, including condos. This policy not only reduces the monthly mortgage payment burden, but also stretches the qualification ratios, allowing buyers to qualify for larger mortgage amounts. Starting on December 15, 2024, the eligibility for insured 30-year amortizations will be expanded to include all buyers (not only first time home buyers). However, for non-first-time homebuyers, the insured 30-year amortization eligibility will be restricted to newly built properties, not used properties. It’s important to note that 30-year amortizations are already available in the marketplace for those with down payments of 20% or higher, this new rule allows for 30-year amortizations with down payments that are less than 20%.

$1,500,000 is the new limit:

Effective December 15, 2024, the federal government will increase the price cap for insured mortgages from $1 million to $1.5 million. This is solely relevant to buyers who intend to purchase a property with less than 20% down payment. The previous cap, set in 2012, was $1 million. For down payments that are 20% or greater, there are no purchase price limits.

Switching Lenders at Renewal Without a Stress Test:

The new Canadian Mortgage Charter, introduced in Budget 2024, includes a provision that allows insured mortgage holders to switch lenders at renewal without undergoing a new mortgage stress test. This reform increases competition among lenders, empowering homeowners to shop for better rates and terms at renewal. Homeowners renewing with their existing lender do not need to re-qualify (only a signature is required), but those looking to switch to a new lender must re-qualify for the mortgage. This is why the elimination of the stress test for renewals is significant—it allows homeowners to shop around and qualify more easily than they would if purchasing or refinancing.

RRSP and TFSA contribution limits for First Time Home Buyers:

Firstly, let’s define what is classified as a First Time Home Buyer. Here is the definition as per the Government of Canada website:

“First-time home buyer – you will be considered to be a first-time home buyer if you did not, at any time in the current calendar year before the withdrawal (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either you owned or jointly-owned, or your current spouse or common-law partner (at the time of the withdrawal) owned or jointly-owned. For example, if you are making a withdrawal on July 31, 2025, the period is from January 1, 2021 to June 30, 2025.”

As of Budget 2024, the Home Buyers Plan (HBP) allows first-time home buyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to purchase or build a qualifying home (this is up from the previous $35,000 limit). This increase applies to withdrawals made after April 16, 2024. You can also combine this withdrawal with the First Home Savings Account (FHSA) for the same home purchase if you meet the conditions. Under the First Time Home Buyer Plan, you can contribute up to $8,000 per year to the First Home Savings Account (FHSA), with a lifetime limit of $40,000.

Under the Home Buyer Plan (HBP), the participant is able to access their eligible RRSP funds to purchase a home without incurring taxes. However, the loan must be paid off within 15 years (or the funds will be deemed as income and taxed accordingly).

The Takeaway

The increase in Canada’s insured mortgage cap from $1 million to $1.5 million marks a significant shift, especially in cities like Toronto and Vancouver, where high prices are already the norm. This policy risks exacerbating affordability challenges by encouraging buyers to stretch for more expensive homes, potentially driving prices even higher. In cities like Calgary, where affordability remains, the cap could fuel a rapid rise in prices, leading to future crises. While this reform offers relief from past restrictions, it might be the beginning of a “buy-now-or-else” mentality. Whether it’s a prudent economic measure or a step toward worsening affordability remains to be seen.

Wondering how much you qualify for under the new rules? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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