On December 15, two major mortgage reforms came into effect in Canada, aiming to tackle housing affordability and ease financial pressures for homebuyers. These changes, which expand 30-year amortizations and raise the insured mortgage cap, mark a significant federal effort to support first-time buyers and address the housing crisis.
More updates could follow soon, as CIBC economist Benjamin Tal suggests that additional measures may be unveiled during Finance Minister Chrystia Freeland’s Fall Economic Update on Monday, December 18.
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December 15 Mortgage Rule Changes
The federal government has introduced reforms described as the “boldest in decades.” Key measures include:
Increased Insured Mortgage Cap
The insured mortgage limit has been raised from $1 million to $1.5 million, helping buyers in expensive markets like Toronto and Vancouver. Buyers can now qualify for high loan-to-value mortgage insurance with a smaller down payment.
Down Payment Requirements:
- 5% on the first $500,000 of the home price
- 10% on the portion between $500,000 and $1.5 million
For example, a $1.5-million home now requires a $125,000 down payment instead of $300,000 under the old rules for uninsured mortgages.
Expanded 30-Year Amortizations
The eligibility for 30-year amortization periods has been extended to:
- First-time homebuyers
- Purchasers of new builds with loan-to-value ratios of 80% or higher
These changes provide more flexibility for buyers, allowing them to spread payments over a longer period to reduce monthly costs.
Building on Existing Programs for First-Time Buyers
The latest reforms complement several federal initiatives designed to assist first-time homebuyers.
First Home Savings Account (FHSA)
Introduced in April 2023, the FHSA allows Canadians to save up to $8,000 annually (lifetime limit of $40,000) for their first home. Contributions are tax-deductible, and withdrawals for home purchases are tax-free.
Home Buyers’ Plan (HBP)
The HBP enables first-time buyers to withdraw up to $60,000 from their RRSPs (up from $20,000 in earlier years) for a down payment. Withdrawals must be repaid within 15 years.
Land Transfer Tax Rebates
First-time buyers in Ontario, British Columbia, Prince Edward Island, and Toronto can receive rebates on land transfer taxes, offering significant savings.
First-Time Home Buyers’ Tax Credit (HBTC)
This tax credit provides up to $10,000 in eligible costs, offering a $1,500 reduction in income tax payable.
GST/HST New Housing Rebate
The rebate covers GST or HST on new-build homes, preconstruction purchases, or major renovations, offering substantial savings for buyers.
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Addressing Housing Supply Challenges
Beyond affordability programs, the government is tackling Canada’s housing supply crisis with initiatives like:
Secondary Suite Loan Program
Loans of up to $80,000 are available at a 2% interest rate for homeowners looking to create rental units within their properties.
Secondary Suite Refinancing Option
Allows existing homeowners to refinance their mortgages to build secondary suites, leveraging home equity to add rental units.
GST Holiday for Developers
Developers of new rental housing can benefit from a rebate on the GST, encouraging the construction of affordable rental units.
Housing Accelerator Fund (HAF)
This $4-billion initiative incentivizes municipalities to adopt pro-housing policies to speed up construction, particularly for “missing-middle” housing like duplexes and triplexes.
Canada Housing Infrastructure Fund (CHIF)
A $1-billion fund supporting essential infrastructure, such as water systems, to enable new housing developments.
What These Changes Mean for Homebuyers
The new rules provide relief for first-time buyers and homeowners facing high mortgage renewal rates. Longer amortization periods reduce monthly payments, easing financial stress, while the increased insured mortgage cap offers more options for buyers in high-cost markets.
However, critics warn of potential drawbacks. Extended amortizations could increase the total interest paid over time, and the higher insured mortgage cap might benefit only a small subset of buyers due to down payment requirements.
As the government continues to prioritize housing affordability, these reforms, combined with existing programs, aim to make homeownership more accessible to Canadians. Further announcements during the Fall Economic Update could introduce additional measures to support the housing market.
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