Major positive reforms in the mortgage market, stimulating activity and rising house prices!

The federal government will make 30-year insured mortgages available to all first-time homebuyers and all new-build buyers.

By law, mortgages in Canada must be insured if the down payment is less than 20% of the property’s value.

First-time homebuyers can now take advantage of 30-year amortization on insured mortgages to reduce payments and qualify not only for new-build purchases, but also for existing homes (such as through the MLS). All other buyers can take advantage of the 30-year amortization when buying a new home from a developer.

The government is also raising the home price cap to $1.5 million for insured mortgages, up significantly from the current $1 million limit. It’s a major rule change, and means buyers can bid on more expensive homes even if they have less than 20% down (say, 10%) — as long as they get mortgage insurance.

Canada cracked down on long mortgage amortizations during the 2008 global financial crisis. Until now, buyers who needed government insurance against default on their mortgages were limited to 25 years of amortization.

The changes will significantly expand the pool of buyers who can access 30-year loans, which significantly lower monthly payments. Buyers with less than 20% down and first-time homebuyers make up about 20% of the market in Canada, while new-build buyers make up only about 4%. The government’s actions could mean interest rates won’t need to fall as much for the housing market to regain momentum, said Benjamin Reitzes, rates and macro strategist at the Bank of Montreal.

“My biggest concern is that the market has calmed down and is behaving as policymakers may have hoped, and now we’re adding fuel,” he wrote in an email. “Canadian households have been deleveraging responsibly, driven by higher rates, and these new changes could spur debt growth.”

At a news conference, Finance Minister Chrystia Freeland sought to allay concerns that the policy would drive up home prices. She said extending the depreciation period for new homes would help create more supply, and her government has also rolled out other measures to spur housing, including billions for municipalities to allow denser zoning and cut red tape. “This is all about making the dream of home ownership accessible to young Canadians, giving first-time homebuyers a leg up in the housing market,” she said.

At 5% interest rates, paying off a mortgage over 30 years instead of 25 would reduce a homebuyer’s monthly payment by about 8%, according to Bloomberg calculations.

We welcome these long-overdue changes and expect to see more homebuyers qualify for mortgages and enter the housing market in the coming months! Сhanges announced today will take effect on December 15 and could have a much bigger positive impact on market activity than a gradual decline in mortgage rates.

If you’re thinking about buying a home, now is your chance to shop around for a good selection of properties, get a great price, take a falling mortgage rate, and perhaps avoid the bidding wars that are likely to return to Canada’s housing market soon.