An extensive lineup of programs supporting first time buyers
Updated mortgage rules: what you need to know.
As of December 15, 2024, Canada introduced significant changes to mortgage rules aimed at improving housing affordability and easing financial pressures for homebuyers. These updates are part of a broader government effort to address a previously experienced housing crisis.
Increased purchase price for insured mortgages
Insured mortgages are obtained through a purchase with less than 20% downpayment. Pros - Insurance provides a better interest rate than uninsured mortgages, and allows them to purchase a home with little downpayment. Cons - They have to pay a fee for this insurance.
The maximum limit for insured mortgages has risen from $999,999 to $1.5 million. This change allows buyers in higher-priced markets like Toronto and Vancouver to qualify for mortgage insurance with a smaller down payment. The new down payment structure is as follows:
5% on the first $500,000 of the home 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 minimum down payment, significantly lower than the previous $300,000 (20%) required for a purchase price above $1,000,000.
Minimum downpayment required for an insured mortgage:
5% on the first $500,000 of the home price
10% on the portion between $500,000 and $1.5 million
2. Expanded 30-year amortizations
Homebuyers have the option of amortizing over 30 years, if:
They have over 20% downpayment (everyone)
They have less than 20% downpayment, and are first-time homebuyers or have purchased pre-construction
First-time buyers must meet certain criteria, such as not having owned a home in the last four years or having experienced a marriage breakdown.
Pros - A longer amortization period reduces monthly payment, and amortization periods can be shortened at a later date when renewing your mortgage.
Cons - Potential for buyers to remain in debt longer, increasing the total interest paid over time.
Existing First Time Buyer Benefits:
First Home Savings Account (FHSA):
This account, introduced in 2023, allows Canadians to save up to $8,000 per year, with a lifetime cap of $40,000, towards their first home. Contributions are tax-deductible, and withdrawals are tax-free when used for purchasing a home.Home Buyers’ Plan (HBP):
This program allows first-time buyers to withdraw up to $60,000 ($120,000 for couples) from their RRSPs for a home down payment, tax-free.Land Transfer Tax Rebates:
Available in Ontario, British Columbia, Prince Edward Island, and Toronto, these rebates help reduce the cost of buying a home for first-time buyers.First-Time Home Buyers’ Tax Credit (HBTC):
This credit helps reduce the costs of purchasing a home by offering a non-refundable tax credit, now up to $10,000, equating to a $1,500 income tax reduction.GST/HST New Housing Rebate:
This rebate helps with the GST or HST on new-build homes, pre-construction purchases, or major renovations.
What to expect moving forward:
TD Economics suggests that the new measures could lead to an uptick in home sales and prices in 2025, although the effects may be modest. The expanded 30-year amortization could increase a buyer’s purchasing power by around 9%, which is similar to a small interest rate cut. However, the impact will mainly be felt by first-time buyers with insured mortgages, a group that has been shrinking over the past few years.
Stay tuned for updates as more housing measures are introduced in the coming months. If you’re in Toronto and wondering how these changes might impact your home-buying plans, feel free to reach out. As a Toronto realtor, I’m here to provide clarity and help you navigate the new mortgage rules with confidence.
