The measures—expanded 30-year amortizations and a higher mortgage insurance cap—add to a growing list of federal efforts to support first-time buyers and tackle Canada’s housing crisis.
But the changes may not end there. CIBC economist Benjamin Tal suggests that additional housing-related measures could be unveiled on Monday during Finance Minister Chrystia Freeland’s Fall Economic Update.
“The Liberal government is now panicking over housing because the Conservatives are owning the housing fight,” Tal said during a recent talk.
“Everybody realizes that housing is the number one file and will be determining who is going to govern after the next election,” he added. “There could be more moves coming in the fiscal update.”
The new mortgage rules explained
In September, the federal government announced sweeping changes to Canada’s mortgage system, calling them the “boldest reforms in decades.”
Key measures include increasing the insured mortgage limit to $1.5 million and expanding eligibility for 30-year amortizations.
Here’s an overview of what the changes are and what they mean:
Increased insured mortgage cap
The maximum price for insured mortgages has increased from $1 million to $1.5 million, opening the door for buyers in higher-priced markets like Toronto and Vancouver to qualify for high loan-to-value mortgage insurance with a smaller down payment. The rules for down payments remain the same:
- 5% on the first $500,000 of the purchase price
- 10% on the portion between $500,000 and $1.5 million
For example, buying a $1.5-million home now requires a $125,000 down payment—much less than the $300,000 needed for uninsured mortgages under the old rules.
Expanded 30-year amortizations
Eligibility for 30-year amortization periods on insured mortgages has been broadened to include all first-time homebuyers and purchasers of new builds, provided the loan-to-value ratio is 80% or higher.
First-time homebuyers must meet criteria such as not having owned a home in the last four years or having experienced a breakdown in a marriage or common-law relationship.
These reforms apply to all high-ratio mortgages on owner-occupied properties or those occupied by a close relative. The government confirmed that existing eligibility criteria for government-backed mortgage insurance will remain unchanged.
An extensive lineup of programs helping first-time buyers today
These latest changes build on a range of existing programs designed to help first-time buyers tackle affordability challenges. Here’s a quick overview:
- First Home Savings Account (FHSA): Announced in the 2022 federal budget and launched in April 2023, the FHSA is a registered account that allows Canadians to save up to $8,000 per year, with a lifetime limit of $40,000, toward their first home. Contributions and investment income are tax-deductible, and withdrawals for a home purchase are tax-free, making it a powerful tool to boost buying power. Last December, David Chilton, bestselling author of The Wealthy Barber, called it “the greatest deal in the history of Canadian savings” in an “emergency” social media video, urging young adults struggling to save for their first home to take full advantage of the program.
- Home Buyers’ Plan (HBP): Introduced in 1992, the HBP has been a cornerstone program for first-time buyers, allowing them to make tax-free withdrawals from their RRSPs to fund a home down payment. Originally designed with a $20,000 withdrawal limit, it has undergone several updates, including a recent increase in Budget 2024 to $60,000 per individual ($120,000 for couples). Withdrawals must be repaid within 15 years, making it a longstanding and valuable tool to help Canadians enter the housing market.
- Land transfer tax rebates: Available to first-time buyers in Ontario, British Columbia, Prince Edward Island, and Toronto, providing savings on land transfer tax costs.
- First-Time Home Buyers’ Tax Credit (HBTC) was introduced in 2009 to assist first-time homebuyers with the costs associated with purchasing a home. In December 2022, the federal government doubled the HBTC, allowing eligible first-time homebuyers to claim a non-refundable tax credit of up to $10,000, which equates to a $1,500 reduction in income tax payable.
- GST/HST new housing rebate: Provides rebates for GST or HST on new-build homes, preconstruction purchases, or significant renovations, with the rebate amount based on the home’s purchase price.
In addition to federal initiatives, various provincial and municipal programs provide targeted support for first-time buyers, such as assistance with down payments and affordable housing incentives tailored to local needs.
Government initiatives to boost housing supply
The government has also rolled out numerous measures aimed at tackling the supply side of Canada’s housing affordability crisis. These include:
Secondary Suite Loan Program: Provides loans to help homeowners create rental units within their properties. As part of an advance announcement ahead of the Fall Economic Update, the government recently doubled the loan limit to $80,000. In addition, the loans will be offered at a 2% interest rate with a 15-year term. Further details on this enhancement are expected to be unveiled on December 16.
Secondary Suites Refinancing Option: Allows homeowners to refinance their mortgages to fund the construction of secondary suites. This option helps existing homeowners leverage their property equity to add rental units, contributing to the housing supply.
GST holiday for developers: Offers a rebate on the GST for developers constructing new rental housing, encouraging more affordable rental builds.
Canada Housing Infrastructure Fund (CHIF): A $1-billion fund supporting critical infrastructure projects, such as water and wastewater systems, to enable new housing developments.
Public Lands for Homes Plan: Unlocks underutilized federal properties to expedite housing construction and increase the availability of affordable homes.
Housing Accelerator Fund (HAF): A $4-billion initiative encouraging municipalities to adopt pro-housing policies, particularly for “missing-middle” housing types like duplexes and triplexes, to speed up construction.
The potential impact of the latest housing announcements
The government’s recent housing measures have sparked mixed reactions from mortgage brokers, lenders, and economists. Many applaud the initiatives, particularly for offering relief to homeowners facing higher mortgage rates at renewal. Extended amortizations, for instance, could reduce monthly payments, providing immediate cash flow relief to households under financial strain.
However, concerns about unintended consequences persist. Extending amortizations could keep borrowers who don’t make extra payments in debt longer, significantly increasing their overall interest costs.
Others have pointed out that the increase in the default-insured mortgage limit to $1.5 million is likely to benefit only a small percentage of buyers, given the significant down payment and default insurance premiums required for a loan of that size.
As we reported previously, the new $1.5-million insured mortgage limit requires a minimum $125,000 down payment and a $57,750 insurance premium, making it accessible only to buyers with an annual income of approximately $327,000.
Latest changes could boost home sales and prices in 2025: TD
TD Economics predicts the government’s new housing measures could lead to higher home sales and prices next year. Key changes, like extended amortizations, offer relief for homeowners renewing at higher rates, while the increased insured mortgage cap may give a small boost to demand in higher-priced markets.
However, author Rishi Sondhi views the rule changes as more of a “secondary tailwind to a market that’s already gaining decent traction into 2025 on the back of lower borrowing costs and a gradually improving economy.”
When CMHC introduced 30-, 35-, and 40-year insured mortgages in 2006, the effect on home sales growth was statistically significant but modest, Rishi noted, indicating a similar outcome could be expected this time.
TD estimates that expanded 30-year amortizations could boost a first-time buyer’s purchasing power by about 9%, comparable to a 90-bps interest rate cut.
“On its own, this is a meaningful difference. However, the impact on the market will be blunted by the fact that it only applies to first-time homebuyers who take out an insured mortgage,’ he wrote, adding that insured mortgages have steadily declined over the past decade, falling from nearly 40% in 2014 to just 20% in 2024.
Regarding the increase in the insured mortgage cap to $1.5 million, Sondhi noted that buyers in the Greater Toronto and Vancouver areas would benefit the most.
However, he pointed out the high household income required to qualify for such loans, estimating that a $1.45-million home would require an income of $225,000–$245,000—”a stretch for many households,” he said.
“For context, 80% of Canadian households earned below $150,000 in 2020, though this share has likely decreased since,” he added.
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Last modified: December 15, 2024
