The new mortgage rules explained

The new mortgage rules explained

In September, the federal government announced sweeping changes to Canada’s mortgage system, calling them the “boldest reforms in decades.”

Key measures include increasing the insured mortgage limit to $1.5 million and expanding eligibility for 30-year amortizations.

Here’s an overview of what the changes are and what they mean:

Increased insured mortgage cap

The maximum price for insured mortgages has increased from $1 million to $1.5 million, opening the door for buyers in higher-priced markets like Toronto and Vancouver to qualify for high loan-to-value mortgage insurance with a smaller down payment. The rules for down payments remain the same:

• 5% on the first $500,000 of the purchase price
• 10% on the portion between $500,000 and $1.5 million

For example, buying a $1.5-million home now requires a $125,000 down payment—much less than the $300,000 needed for uninsured mortgages under the old rules.

Expanded 30-year amortizations

Eligibility for 30-year amortization periods on insured mortgages has been broadened to include all first-time homebuyers and purchasers of new builds, provided the loan-to-value ratio is 80% or higher.

First-time homebuyers must meet criteria such as not having owned a home in the last four years or having experienced a breakdown in a marriage or common-law relationship.

These reforms apply to all high-ratio mortgages on owner-occupied properties or those occupied by a close relative. The government confirmed that existing eligibility criteria for government-backed mortgage insurance will remain unchanged.

An extensive lineup of programs helping first-time buyers today

These latest changes build on a range of existing programs designed to help first-time buyers tackle affordability challenges. Here’s a quick overview:

• First Home Savings Account (FHSA): Announced in the 2022 federal budget and launched in April 2023, the FHSA is a registered account that allows Canadians to save up to $8,000 per year, with a lifetime limit of $40,000, toward their first home. Contributions and investment income are tax-deductible, and withdrawals for a home purchase are tax-free, making it a powerful tool to boost buying power. Last December, David Chilton, bestselling author of The Wealthy Barber, called it “the greatest deal in the history of Canadian savings” in an “emergency” social media video, urging young adults struggling to save for their first home to take full advantage of the program.

• Home Buyers’ Plan (HBP): Introduced in 1992, the HBP has been a cornerstone program for first-time buyers, allowing them to make tax-free withdrawals from their RRSPs to fund a home down payment. Originally designed with a $20,000 withdrawal limit, it has undergone several updates, including a recent increase in Budget 2024 to $60,000 per individual ($120,000 for couples). Withdrawals must be repaid within 15 years, making it a longstanding and valuable tool to help Canadians enter the housing market.

• Land transfer tax rebates: Available to first-time buyers in Ontario, British Columbia, Prince Edward Island, and Toronto, providing savings on land transfer tax costs.

• First-Time Home Buyers’ Tax Credit (HBTC) was introduced in 2009 to assist first-time homebuyers with the costs associated with purchasing a home. In December 2022, the federal government doubled the HBTC, allowing eligible first-time homebuyers to claim a non-refundable tax credit of up to $10,000, which equates to a $1,500 reduction in income tax payable.

• GST/HST new housing rebate: Provides rebates for GST or HST on new-build homes, preconstruction purchases, or significant renovations, with the rebate amount based on the home’s purchase price.