New Mortgage Rules in Canada Offer Benefits for Newcomers

There have been two significant changes to Canada’s mortgage rules, which we’ve dug into in more detail in this post.

Key Takeaways 

• The price cap for insured mortgages has increased, which means home buyers can provide a lower downpayment (less than 20%) for home purchases valued up to $1.5 million.  

• First-time home buyers can access a 30-year amortization period for their mortgage, up from 25 years. This decreases the monthly payments.  

Insured Mortgage Price Cap Increased To $1.5 Million

Canada has increased the price cap for insured mortgages to $1.5 million (up from $1 million). What this means is that homeowners looking to buy a property up to $1.5 million can provide a down payment of less than 20% and insure the mortgage instead.

The previous limit was set to $1 million, which meant that anyone looking to buy a home worth more than $1 million needed to save at least 20% for a down payment. This made it challenging for home buyers in expensive markets to access the market.

The kicker is that many of the expensive markets are also the cities that attract the most newcomers – Toronto, the Greater Toronto Area, and Vancouver, for example. So this change is likely to benefit many newcomers to Canada.

Here’s how much downpayment you now need to buy a home in Canada:

• For homes priced $500,000 or less, the minimum downpayment is 5% of the purchase price.
• For homes priced between $500,000 and $1.5 million, it’s 5% on the first $500,000 and 10% on the portion above $500,000.
• For homes priced $1.5 million or more, the minimum downpayment is 20% of the purchase price.

Here are examples to illustrate how these rules work:

Home Price: $700,000

• 5% of the first $500,000 = $25,000
• 10% of the remaining $200,000 = $20,000
• Total Downpayment: $45,000

This is the same as the previous rules.

Home Price: $1.1 million

• 5% of the first $500,000 = $25,000
• 10% of the remaining $600,000 = $60,000
• Total Downpayment: $85,000

Under the previous rules, home buyers would have needed to save $220,000 as a downpayment to buy this house.

Home Price: $1.48 million

• 5% of the first $500,000 = $25,000
• 10% of the remaining $980,000 = $98,000
• Total Downpayment: $123,000

Under the previous rules, home buyers would have needed to save $296,000 to buy this house.

Longer Amortizations Available for All First Home Buyers

First-home buyers will be able to access 30-year amortizations, which increases the amount of interest home buyers pay but decreases the monthly payments – which makes it easier to qualify for the mortgage in the first place since mortgage qualification depends in part on the total monthly payments.

This change also applies to the purchase of all new builds – so those who are not first home buyers can access a 30-year amortization for new builds.

Here’s what it looks like in practice for a $700,000 mortgage:

• 30-year amortization: monthly mortgage payment of $3,408.31 (at a 4.2% interest rate)
• 25-year amortization: monthly mortgage payment of $3,758.43 (at a 4.2% interest rate).

As you can see, first-time homeowners would pay $350 less per month with the 30-year amortization (though these homeowners will pay more interest over the lifetime of the loan).