As Canada continues to grapple with housing affordability challenges, new federal mortgage rules are being introduced to provide some relief to potential homebuyers. These changes are designed to offer more flexibility and support for Canadians trying to navigate an increasingly expensive real estate market. For many, these new rules may provide the opportunity to step onto the property ladder for the first time, while others could benefit from the ability to tap into the equity in their homes.
In this blog, we’ll break down the key aspects of these new rules, and explore how they can impact prospective buyers.
Key Changes to Canada’s Mortgage Rules
1. Extension of Amortization Period to 30 Years
One of the most significant changes in Canada’s mortgage regulations is the extension of the amortization period for new construction and resale homes. Previously, the maximum allowable amortization period was 25 years, but as of December 15, 2024, that limit has been increased to 30 years.
Why This Matters for First-Time Homebuyers
This rule change is especially beneficial for first-time homebuyers. By extending the amortization period, buyers can spread their mortgage payments over a longer time frame, resulting in lower monthly payments. For those struggling to afford a home in an already inflated market, this could make a substantial difference in terms of affordability.
For example, a homebuyer purchasing a property at $500,000 might have to pay significantly higher monthly mortgage payments if they are locked into a 25-year amortization. With the extended 30-year amortization, those same buyers could see their monthly payments reduced by hundreds of dollars, easing the pressure on their finances and potentially freeing up more room in their budget for other expenses.
Increased Buying Power
In addition to making monthly payments more manageable, the extended amortization could also increase the buying power for first-time buyers. For many, this could mean the difference between being able to purchase a home or continuing to rent. With lower monthly payments, buyers may now be able to afford a more expensive home that would have previously been out of reach.
However, brokers also caution that while this change can help get more buyers into the market, it could also result in them paying more interest over the life of the loan due to the extended repayment period.
2. Secondary Suites Refinancing – Access to Additional Financing
Another major change that will take effect on January 15, 2025, involves refinancing for secondary suites. Homeowners will now be able to refinance their property to borrow up to $2 million to build an additional dwelling unit (ADU) on their property.
The Benefit of Secondary Suites
The ability to tap into home equity for the purpose of adding a secondary suite is a potentially transformative change for homeowners. For those with a large enough property, adding an ADU can generate extra rental income, which could help with mortgage payments or provide financial stability. This is particularly attractive in cities with high demand for rental properties and where rental income can significantly offset housing costs.
Mortgage brokers point out that this measure could also be an avenue for homeowners looking to maximize the value of their property. Whether it’s creating a rental unit for additional income or building a space for a family member, the flexibility to access equity for this purpose is a welcome option for many.
Eligibility and Restrictions
It’s important to note that this refinancing option applies only to homeowners who already own their property. As of January 15, the government will allow them to borrow funds by leveraging the equity in their home – up to a limit of $2 million. However, the criteria for eligibility are restrictive. To qualify for this new refinancing option, homeowners must meet specific requirements set out by the federal government, as outlined in a news release issued in October.
While this measure has the potential to help homeowners, brokers advise that individuals carefully consider their financial situation before moving forward. They recommend speaking to a mortgage professional to understand the long-term implications of borrowing against home equity, particularly for those who may already be stretched thin with existing financial obligations.
3. More Opportunities, but More Costs
While these changes open doors to more Canadians who may have previously been shut out of the housing market, they also come with caveats. Specifically, spreading out mortgage payments over a longer period may result in buyers paying significantly more in interest over the life of the loan. This could be a disadvantage for those who have the means to pay off their mortgage sooner but choose the extended amortization for the sake of affordability.
The leading mortgage brokers in the country warn that while these new rules make it easier to qualify for a mortgage, prospective buyers must fully understand the long-term financial commitment. The overall cost of borrowing over 30 years could add up quickly, and the benefits of lower monthly payments should be weighed against the extra interest paid over time.
The Reality of Housing Affordability
Despite the federal government’s efforts to make homeownership more accessible, the latest data still paints a sobering picture for many Canadians. In large cities like Toronto, Vancouver, and Montreal, the income required to purchase a home continues to climb. According to recent statistics, even with the new measures in place, the salary needed to buy a home in these cities is still well over $100,000.
The introduction of extended amortization periods and refinancing options may help ease the burden for some, but these changes are unlikely to solve the affordability crisis for everyone. Rising home prices, coupled with high demand, continue to place a significant barrier in front of many would-be homebuyers. While these measures will undoubtedly help some buyers, the overall affordability gap remains a challenge.
