On September 16, Finance Minister Chrystia Freeland announced some changes to certain mortgage rules as part of a larger effort to make housing more affordable for Canadians.
In the announcement, Freeland said that the government was increasing the cap on insured mortgages to $1.5 million from $1 million. This increase will enable more people to purchase a house with the minimum down payment of 5 per cent. She also said that home buyers will now be able to take out loans for a 30-year period if they are purchasing for the first time or if someone is buying a new build.
“We have taken bold action to help more Canadians afford a downpayment, including with the Tax-Free First Home Savings Account, through which more than 750,000 Canadians have already started saving,” said Freeland.
“Building on our action to help you afford a downpayment, we are now making the boldest mortgages reforms in decades to unlock homeownership for younger Canadians. We are increasing the insured mortgage cap to reflect home prices in more expensive cities, allowing homebuyers more time to pay off their mortgage, and helping homeowners switch lenders to find the lowest interest rate at renewal.”
There are several groups in favour of the changes, including the Canadian Home Builders’ Association (CHBA), who has been calling for similar recommendations. CHBA’s Housing Market Index, which measures the sentiment of builders ahead of housing starts, has indicated catastrophic projections for the months and years ahead, which reinforces CHBA’s calls for mortgage reforms to help turn the tables.
“CHBA is very pleased to see these moves on the mortgage rules,” said Kevin Lee, CEO of CHBA. “These types of changes are exactly what CHBA has been calling for, because we simply can’t build homes, be they condos, townhomes or whatever housing form makes sense, if owners can’t qualify for mortgages. Better access to mortgages will enable buyers to access the market, driving more housing starts and giving industry a chance to push towards targets to close the supply-demand gap. Canada can’t aim to double housing starts, or to industrialize the housing sector to achieve that, if buyers can’t buy—it is exactly these types of policy changes that are needed to create the conditions necessary to move forward.”
Despite many supporting this announcement, there are some critics.
In response to the announcement, NerdWallet Canada spokesperson and real estate financial expert Clay Jarvis said, “It’s an understandable move at a time when home sales are sluggish and the government is unpopular, but the last thing the housing market needs is a sudden surge in demand. We’ve seen that movie before. The ending sucks.”
“Making 30-year amortizations available for first-time home buyers will improve their chances of getting qualified for mortgages, lower their mortgage payments and make owning a home a more attainable goal. That’s all good, right? But what happens when every single first-time home buyer in Canada suddenly gets an affordability boost at the exact same time? Demand spikes and takes home prices with it. That might not be the goal of this particular rule change, but that’ll be the result. A change like this is really risky in an undersupplied market. We saw what happened during the pandemic, when everyone had access to low mortgage rates and mediocre supply: wall-to-wall bidding wars and horrendous price increases.”
Jarvis also said that generally, home buyers should be encouraged to put more than the minimum amount down which will help to lower their interest costs as well as boost the equity they have in their homes. “This new rule flies in the face of that logic, and will increase demand — and prices — for homes over $1 million,” he said. “It’s a good thing the government has decided to lower down payment requirements at the same time they’re extending amortizations, because first-timers are going to need all the help they can get once these changes ignite the housing market.”
These new measures build on the Canadian Mortgage Charter¸which was announced in Budget 2024. This allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test.
These measures are also part of the federal government’s plan to build almost four million new homes to help more Canadians become homeowners.
