In 2023, the Canada Mortgage and Housing Corporation (“CMHC”) estimated that 3.5 million additional housing units needed to be built to reach the target levels of affordability last seen in 2004. However, as of August 2024, the CMHC estimated that Canada’s current rate of homebuilding was 248,480 housing starts per year. It is undeniable that Canada is currently experiencing a housing crisis – both in terms of the number of homes available and the affordability of those homes. The only remaining question is: how do we solve it?

On September 16, 2024, Minister of Finance, Chrystia Freeland, announced the federal government’s most recent attempt to address the housing crisis: reform the mortgage rules.

What Changed?

As of December 15, 2024, the following measures will be put in place:

1. Increasing the price cap for insured mortgages from $1 million to $1.5 million.

An insured mortgage is a mortgage that requires mortgage loan insurance, or CMHC insurance, due to the low amount of equity that the borrower has in their home. A borrower must have an insured mortgage if their down payment represents less than twenty percent of the purchase price of their home. Prior to this change, any house that cost more than $1 million was not eligible for mortgage loan insurance; therefore, homes over $1 million required a down payment equal to twenty percent of the purchase price of the home. Now that the government has raised the price cap to $1.5 million, buyers purchasing homes that cost less than $1.5 million qualify for an insured mortgage for up to ninety-five percent of the purchase price of their home.   

This marks the first increase to the price cap since 2012 and is intended to better reflect current housing market realities. For instance, in Toronto, the average price of a house in 2012 was $497,298; in comparison, the average price of a house in Toronto in 2023 was $1,134,781. While the Toronto real estate market may be an extreme example, this exponential increase in the cost of homes has occurred in many, if not all, housing markets across Canada.

• Expanding eligibility for 30-year mortgage amortizations for all first-time homebuyers to all buyers of new builds.

In Canada, mortgages typically have a 25-year mortgage amortization period. An amortization period is the number of years that it will take to pay off your mortgage; a longer amortization period means that you will have longer to pay off your home and, consequently, that your monthly payments will be lower. 

As of August 1, 2024, the federal government announced that lenders could offer 30-year amortization periods for first-time homebuyers who have insured mortgages and are purchasing new builds. As of December 15, 2024, this allowance will be expanded to include all first-time homebuyers and all purchasers of new builds. By allowing all purchasers of newly built homes to qualify for a 30-year amortization period, this measure is also expected to incentivize new housing construction and address housing shortages.  

These reforms are intended to build on other measures recently rolled out by the federal government, including:

• Allowing insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test increases mortgage competition and enables Canadians with insured mortgages more flexibility to switch to a cheaper deal.
• Launching the Tax-Free First Home Savings Account, which allows Canadians to contribute up to $8,000 per year, up to a lifetime limit of $40,000, towards their first down payment without paying tax on deposits or withdrawals to the account.

What Does This Mean for Me?

Through this mandate, Minister Freeland intends to help younger generations, particularly Millennials and Gen Z, obtain home ownership.

By increasing the price cap for insured mortgages to $1.5 million, purchasers are now able to buy more expensive homes with smaller down payments. For instance, prior to the amendment, to qualify for a mortgage to purchase a $1.4 million home, you needed a down payment equivalent to twenty percent of the purchase price, or $280,000. Now, you can qualify for an insured mortgage for a $1.4 million home with a down payment of as little as five percent of the purchase price, or $70,000.

Likewise, by allowing for 30-year amortization periods, buyers can stretch their mortgage payments out for another five years, thereby allowing them to take on lower monthly payments. Taking the above example, if you purchased a $1.4 million home with a twenty percent down payment and had a mortgage with a 25-year amortization period, your monthly payments would be $3,733, without interest. For that same home with a mortgage with a 30-year amortization period, the monthly payment would go down to $3,111, without interest. Both of these measures could mean the difference between renting and being able to afford a home for many Canadians.

Are There Any Downsides?

Although this policy has the potential to make homeownership more accessible, it is not without its criticisms:

• Limited Impact. The increase to the price cap of insured mortgages only impacts people who are purchasing homes worth over $1 million. While the average cost of a home in Toronto is over $1 million, this is not the case for many smaller cities and towns across Canada and this price point remains out of reach to most Canadians.
• Increased Interest. A longer amortization period would result in lower monthly mortgage payments; however, buyers would also be left paying interest on their mortgages for longer, increasing the overall cost of the home. Longer mortgage amortization periods also mean that Canadians purchasing homes in their thirties or forties may be left paying off mortgages well into retirement in their sixties and seventies when they have a significantly lower income.
• Counter-productive. While these relaxing the rules on mortgages may make owning a home more accessible, it may also stimulate the demand for houses and exacerbate the supply issues already plaguing the country.

It is far too soon to know the ultimate impact and effect of these changes on the Canadian residential real estate market, and it is clear that no one measure can adequately address the housing crisis. However, Canadians can only hope that these new measures are a step in the right direction and fulfill at least some of their promises.   

If you would like more information regarding these recent changes to mortgage rules, and how they may affect the sale or purchase of your home, please contact experienced Real Estate Lawyer, Paria Rad, at Woitzik Polsinelli LLP at 905-668-4486, ext. 230 or paria@durhamlawyer.ca.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.

This blog was co-authored by Articling Student, Leslie Haddock.