The Canadian government has rolled out significant mortgage policy changes effective in late 2024, aimed at making homeownership more accessible for first-time buyers and addressing the affordability challenges in today’s housing market. But will these changes truly benefit new homeowners, or are they more of a temporary relief? Let’s break down the numbers and assess the real impact.

Key Mortgage Reforms to Note

• Increased Insured Mortgage Cap:
  The federal government has raised the insured mortgage limit from $1 million to $1.5 million, effective December 15, 2024. This adjustment reflects current housing market realities, enabling more Canadians to qualify for mortgages with down payments of less than 20%.
• Extended Amortization Periods:
  Eligibility for 30-year mortgage amortizations has been expanded to include all first-time homebuyers and purchasers of new builds. This extension aims to reduce monthly mortgage payments, making homeownership more attainable for younger Canadians.
• Removal of Stress Test for Mortgage Renewals:
  As of November 21, 2024, the Office of the Superintendent of Financial Institutions (OSFI) eliminated the requirement for borrowers to undergo a stress test when switching lenders at mortgage renewal, provided the loan amount and amortization period remain unchanged. This change enhances competition among lenders, allowing homeowners to secure better rates more easily.

Mortgage Savings: The Numbers You Need to Know

Scenario 1: Refinancing with Lower Rates

A homeowner currently has a fixed-term mortgage of $700,000 with an interest rate of 5.5%, which was locked in 18 months ago. Today’s rates for a comparable fixed term are around 3.5%. Here’s how much they could save:

• Monthly Payments at 5.5% (Current Rate):
  Approx. $4,300 per month.
• Monthly Payments at 3.5% (New Rate):
  Approx. $3,440 per month.
• Savings per Month:
  $860.
• Savings per Year:
  $10,320.
• Savings Over 5 Years (Typical mortgage term):
  $51,600.

This calculation reflects a 20% reduction in monthly payments, demonstrating the significant savings homeowners can achieve by refinancing at today’s lower rates.

Scenario 2: Increased Purchasing Power with New Policy

The new policy allowing for a 7% increase in purchasing power enables buyers to afford homes at higher price points. Here’s an example:

• Previous Mortgage Cap: $1,000,000.
  At a 20% down payment, buyers could afford homes up to $1,250,000.
• New Mortgage Cap: $1,500,000.
  With the same 20% down payment, buyers can now afford homes up to $1,875,000.
• Increase in Home Purchase Price:
  $125,000 for every $1M, or 7% higher purchasing power.

This adjustment significantly expands the range of homes buyers can consider, especially in competitive markets like Toronto.

What This Means for You

• Homebuyers:
  These reforms provide greater flexibility and affordability, especially in high-priced markets.
• Home Sellers:
  An expanded pool of qualified buyers can lead to increased demand for your property.
• Investors:
  Enhanced financing options and a more dynamic market present new investment opportunities.

Stay Informed and Take Action

For personalized advice and to navigate these changes effectively:

• Follow our blog for the latest real estate news and insights.
• Contact us for tailored guidance on your real estate needs.

Summary of Key Points

• Insured mortgage cap increased to $1.5 million.
• 30-year amortizations now available for all first-time buyers and new builds.
• Stress test requirement removed for certain mortgage renewals.
• Potential savings of 20% on mortgage payments with today’s lower rates.
• 7% increase in purchasing power under the new policy.

Staying informed about these developments will empower you to make confident decisions in 2025’s real estate market.