It’s not just the gradual decrease in mortgage rates that’s good news for those looking to buy their first home. After consistently tightening mortgage regulations since 2008[1] we are finally seeing some easing, which will likely be a breath of fresh air for anyone aspiring to purchase their first property.
Starting December 15, 2024, all first-time homebuyers will now be able to amortize their mortgage over 30 years. The federal government made this announcement on September 16. Since August 1, this option was only available to first-time buyers of a new property. Now, the eligibility for a 30-year mortgage will be extended to all first-time buyers, whether they’re purchasing a new or existing property.
In addition, this will apply to the purchase of any new property, regardless of whether it’s the buyer’s first purchase or not. This means that mortgage insurers, such as CMHC, Sagen, and Canada Guaranty, will accept to insure 30-year mortgages for buyers who don’t have the required minimum 20% down payment for a conventional mortgage. Let’s remember that, thanks to mortgage insurance, the minimum down payment is only 5% when the purchase price of the property doesn’t exceed $500,000. When the price exceeds this threshold, the minimum down payment is $25,000 (5% for the first $500,000) plus 10% on the remaining amount.
With property affordability in Quebec near its historic low, extending the amortization period was sooner or later inevitable; otherwise, more and more young families would have to give up their dream of homeownership. It’s for reasons of intergenerational fairness that the Canadian government decided to change the rules. Of course, extending the amortization period means lower monthly payments, but on the flip side, the borrower will pay more interest to the lender over the total loan term compared to a shorter amortization period. For example, for a loan of $475,000, assuming a 5-year mortgage rate of 4.79%, the monthly payment is reduced by around $230 (from $2,706 over 25 years to $2,476 over 30 years)[2]. This will certainly help more first-time buyers qualify. Another way to look at it is that a buyer who already qualifies for a $2,706 monthly payment will soon be able to borrow $44,000 more (for a total of $519,000 instead of $475,000). This can make a significant difference in the price of properties within their budget.
But that’s not all. At the same time, the federal government also announced an increase in the price cap for insured mortgages, from $1 million to $1.5 million. This cap may seem high for a first-time buyer in Quebec. However, in Canada’s most expensive markets, like Toronto and Vancouver, prices now require a higher limit than the $1 million cap set in 2012. For example, for a property priced at $1.2 million, buyers currently need to secure a conventional mortgage, which requires a minimum down payment of $240,000 (20%). Starting December 15, a buyer of such a property will be eligible for an insured mortgage, and will therefore only need a “minimum” down payment of $95,000.
Combined with the downward trend in borrowing costs, this new measure will undoubtedly provide a boost to the real estate market in 2025.
