The federal government will make 30-year insured mortgages available to all first-time homebuyers and all new-build buyers.
By law, mortgages in Canada must be insured if the down payment is less than 20% of the property's value.
New Limits for Insured Mortgages
First-time buyers can now take advantage of a 30-year amortization on insured mortgages to reduce their payments and qualify not only for new-builds but also for existing homes (such as through the MLS). All other buyers can take advantage of the 30-year amortization when buying a new home from a developer.
The government is also raising the property price cap to $1.5 million for insured mortgages, up significantly from the current $1 million limit. It’s a major rule change, and means buyers can bid on more expensive homes even if they have less than 20% down (say, 10%) — as long as they get mortgage insurance.
Historical Limits and Amortization Changes
Canada cracked down on long mortgage amortizations during the 2008 global financial crisis. Until now, buyers who needed government insurance against default on their mortgages were limited to 25-year amortizations.
These changes will significantly expand the pool of buyers who can access 30-year loans, which significantly lower monthly payments. Buyers putting less than 20% down and first-time buyers make up about 20% of the market in Canada, while new-build buyers make up only about 4%.
Experts on the impact
The government’s actions could mean that interest rates won’t need to fall as much for the housing market to regain momentum, said Benjamin Reitzes, rates and macro strategist at the Bank of Montreal.
“My biggest concern is that the market has calmed down and is behaving as policymakers might have hoped, and now we’re adding fuel,” he wrote in an email. “Canadian households have been deleveraging responsibly, driven by higher rates, and these changes could spur debt levels to rise.”
Finance Minister Chrystia Freeland’s response
At a news conference, Finance Minister Chrystia Freeland tried to allay fears that the policy would drive up home prices. She said extending the amortization period for new homes would help create more supply, and her government has also rolled out other measures to spur housing, including billions for municipalities to allow denser zoning and cut red tape.
“This is all about making the dream of home ownership accessible to young Canadians while giving first-time homebuyers a head start in the housing market,” she said.
At 5% interest rates, paying off a mortgage over 30 years instead of 25 would cut a homebuyer’s monthly payment by about 8%, according to Bloomberg calculations.
The federal government is rolling out another set of mortgage rule changes aimed at addressing the housing shortage, this time focusing on supporting the construction of additional dwellings.
Deputy Prime Minister Chrystia Freeland announced that starting January 15, 2025, Canadians will be able to access 90% of their home's value by refinancing their mortgage with default insurance to build additional dwellings.
The goal is to increase rental supply in high-demand areas while helping homeowners offset rising mortgage costs.
By Olga Balaur