If buying a new home stresses you out, you’re not alone. The Canadian Mortgage and Housing Corporation (CMHC) recently conducted a consumer study and found that more than half of the respondents were worried about buying a home.
Not only did the survey reveal that 63 per cent of respondents were concerned about buying a home, but 36 per cent faced unexpected expenses during their homebuying process. Plus, nearly half of buyers paid the maximum price they could afford for their home. In other words, affording and paying for a home has been on many people’s minds.
First-time buyers and newcomers were among those who were the most stressed and reported needing longer to save for down payments. Given that information, the Canadian government decided to step in. On Sept. 24, the Department of Finance announced the “boldest mortgage reforms in decades” to make housing more affordable for Canadians.
If you’re finally looking to enter the housing market, here are the new mortgage rules you should know about that may make it easier.
A Longer Amortization Period
An amortization period is the number of years you will take to pay off your mortgage (including the principal and interest). It’s not to be confused with the mortgage term, which is the length of time you agree to make mortgage payments to your lender at your agreed-upon interest rate.
The longer your amortization period is, the lower your payments are. Therefore, lengthening the amortization period can be a handy tool when you’re looking to cut costs or face unexpected expenses.
This past July, the Canadian government introduced 30-year amortization periods, but only for first-time buyers purchasing a new build with an insured mortgage. The new announcement this fall revealed that as of Dec. 15, 2024, it is relaxing that rule so that all first-time buyers of any builds and all new-build buyers can take advantage of a 30-year amortization.
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An Increase in What New Buyers Can Spend
In Canada, anyone with less than a 20 per cent down payment on the purchase price of a property is required to get what is called an insured mortgage. An insured mortgage comes with federally-backed default insurance in the event you are unable to make a payment. These are also called CMHC or high-ratio mortgages.
In 2012, the government placed a cap of $1 million on insured mortgages, which worked at the time. However, as home prices increased over the years, many purchasers found it harder to enter the housing market for that price. So, as of Dec. 15, the government is increasing its cap to $1.5 million instead.
Who Qualifies as a First-Time Home Buyer?
If you’re a first-time home buyer, these new rules may be especially relevant to you and your quest to purchase property. However, there are some specifics to keep in mind. As of June 11, 2024, the government specifies that to qualify as a first-time home buyer, you must meet one of the following:
- You have never purchased a home before
- In the last four years, you have not occupied a home as your principal place of residence that you or a current spouse or common-law partner owned.
- You have recently broken off a marriage or common-law partnership
It’s important to note that if you’re considering an investment property, you won’t qualify as a first-time home buyer under these new rules.
Related: What Is Mortgage Payment Shock and Why Are Canadians Worried?
Why Did the Government Make These Changes?
According to Finance Minister Chrystia Freeland, these changes are designed to bolster housing supply while helping young Canadians buy their first home.
“It is absolutely essential that the dream of homeownership be a reality for young Canadians,” she told the press. “We are, quite intentionally, giving them an advantage, giving them a leg up in the property market.”
Whether that’s the case or whether naysayers who claim any benefits will be indirect are right, changes come into effect this December. It’s just the latest step under the current government’s plan to build an additional 3.9 million homes by 2031.
