Mortgage Rule Updates: How They Impact Homebuyers and Homeowners
In recent days, significant changes to mortgage rules have come into effect, impacting both existing homeowners and first-time homebuyers. These updates include:
An increase in amortization for first-time homebuyers and newly built homes from 25 to 30 years.
A higher purchase price cap for insured mortgages.
Loosened stress test rules when switching lenders at renewal.
Let’s break down these changes and what they mean for you.
1. Increasing Amortization from 25 to 30 Years
Before December 15th, the maximum amortization period for an insured mortgage was 25 years. An insured mortgage applies to any mortgage where the down payment is less than 20%. Under the new rules, first-time homebuyers and those purchasing newly built homes can now extend the amortization to 30 years.
What’s the Impact?
From a qualification perspective, the effect on borrowing power is minimal. For example:
On a $500,000 purchase with 5% down, extending the amortization period reduces the annual income needed to qualify by approximately $5,000.
Monthly payments, however, are significantly reduced—by about $233 per month (based on current five-year fixed rates).
For Canadians feeling the financial pinch, this improvement in cash flow could provide much-needed breathing room.
Who Qualifies?
First-time homebuyers.
Buyers of newly built homes.
2. Increasing the Purchase Price Cap on Insured Mortgages
As of December 15th, mortgages for properties priced up to $1,500,000 can now be insured. Previously, any purchase above $1 million required a minimum 20% down payment or with some lenders who used a sliding scale, even larger. For example, 20% of the first $1,000,000 and 35% of the remainder.
What’s the Impact?
This change significantly reduces the upfront down payment needed for homes in this price range. For example:
On a $1.2 million purchase, the down payment calculation now works as follows:
5% of the first $500,000 = $25,000.
10% of the remaining $700,000 = $70,000.
Total down payment = $95,000.
Under the previous rules, a 20% down payment would have been $240,000.
Some lenders even had a sliding scale, 20% of the $1,000,000 and 35% of the $200,000, increasing the down payment even further
This change saves buyers $145,000-$175,000 in upfront costs.
For those looking to enter the market or move into higher-priced homes, this rule opens up new opportunities.
3. Loosening Stress Test Requirements When Switching Lenders at Renewal
Mortgage renewals just got easier. Previously, homeowners without insured mortgages looking to switch lenders at renewal were subject to the stress test (the higher of the contract rate plus 2%, or 5.25%). Now, if your mortgage qualifies as “insurable,” you can switch lenders without undergoing the stress test.
What’s an Insurable Mortgage?
To qualify:
The property must be your owner-occupied principal residence.
The amortization period must be 25 years or less.
What’s the Impact?
Without the stress test, qualification is based on the contract rate of the new mortgage instead of the higher stress test rate. For example:
With a current five-year fixed rate of 4.44%, you avoid qualifying at 6.44%, making a significant difference.
Additionally, up to $3,000 can be allocated to cover penalties associated with the switch if it occurs outside of renewal.
You cannot add new funds to the mortgage and you cannot increase the amortization
This change increases borrower flexibility, empowering you to shop for better rates and terms without being penalized by stricter stress test requirements.
What Do These Changes Mean for Borrowers?
In today’s challenging housing market, these updates aim to provide borrowers with:
More choices at renewal.
Improved cash flow through extended amortizations.
Lower upfront costs with higher insured mortgage limits.
While challenges remain for Canadian homebuyers, every small change can make a significant difference. Our associations—CMBA-BC, CMBA, and MPC—continue to advocate for policies that help consumers navigate these times.
If you’d like to learn more about how these mortgage rule changes could affect your situation, don’t hesitate to get in touch.
Call our office at 250-754-1904.
Book a call at www.calendly.com/carolineroach.
We’re here to help you make sense of these changes and plan for your future.
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