In the final interest rate announcement of 2024, the Bank of Canada reduced its benchmark rate by 50 basis points (bps), bringing it down to 3.25%. This rate cut, which follows a similar reduction in October, is being made amidst a slight uptick in inflation. The Bank’s decision marks its fifth consecutive rate cut, signaling positive news for Canadian homebuyers, both current and prospective. This reduction, alongside new mortgage rules taking effect this month, offers further relief to those entering the housing market.
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New Mortgage Rules Aim to Provide Relief for More Homebuyers
Homeownership is a long-standing goal for many Canadians, but with rising home prices and the cost of mortgages, achieving this dream has become increasingly difficult. However, recent changes in mortgage rules offer significant support to first-time homebuyers and existing homeowners renewing their mortgages.
Reduced Down Payment for Homes Worth Up to $1.5 Million
Starting December 15, 2024, new mortgage rules will allow buyers to access mortgage insurance for homes valued up to $1.5 million. Under the new guidelines, buyers will need a minimum down payment of 5% for the first $500,000 and 10% for the remainder. For example, a $1 million home will require a down payment of just $75,000, significantly lower than the previous requirement of $200,000. This change is especially beneficial in high-cost housing markets like Toronto and Vancouver.
More Canadians Can Qualify for 30-Year Mortgages
As of December 15, 2024, the government will extend eligibility for 30-year amortizations to all first-time homebuyers and those purchasing new builds. This policy, previously available only for new builds, allows homeowners to reduce their monthly mortgage payments by extending the repayment period from 25 to 30 years.
No Stress Test Required for Mortgage Switch at Renewal
Starting November 21, 2024, mortgage holders who wish to switch their mortgage to another lender at renewal will no longer be required to undergo a stress test. This policy change applies to both insured and uninsured mortgages, enabling Canadians to explore more competitive options without the concern of failing a stress test.
Bank of Canada Reduces Key Interest Rate to 3.25%: Signals a Shift to Gradual Policy Adjustments
A Warning About Canadian Fixed Mortgage Rates: Why They May Rise Despite Bank of Canada Cuts
Bank of Canada Official Cautions Against Adjusting Mortgage Rules to Address Housing Affordability
Bank of Canada Executes Significant Rate Cut to Stimulate Job Growth
Bank of Canada Historic 3.75% Rate Cut: Key Impacts on Mortgages, Loans, and Savings 2024
A Complement to Existing Programs and Tax Benefits
In addition to these changes, several existing programs continue to support first-time homebuyers:
- First Home Savings Account (FHSA): This program allows Canadians to contribute up to $8,000 annually towards their first home, with a lifetime contribution limit of $40,000. Contributions are tax-deductible, and withdrawals for a first home purchase are not taxable.
- Home Buyers’ Plan (HBP): First-time buyers can withdraw up to $60,000 from their RRSP for a down payment, with repayment over 15 years. The combined limit for couples is $120,000.
- Land Transfer Tax Rebates: Available in Ontario, British Columbia, Prince Edward Island, and Toronto, these rebates reduce the cost of purchasing a home.
- First-Time Home Buyers’ Tax Credit (HBTC): Buyers can claim up to $10,000 for qualifying homes, resulting in a $1,500 tax reduction at a 15% tax rate.
- GST/HST New Housing Rebate: Buyers of new homes or those who make substantial renovations can qualify for a rebate on GST or HST.
These measures, along with the recent interest rate cuts, offer much-needed assistance to first-time homebuyers struggling with the high costs of homeownership in Canada.
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