On the Board: Mortgage Rule Changes for Buyers and Owners

Better late than never — will a lineup of recent rule changes help or just push up home prices?

Now at 4 new rules (and counting?), the federal government seems keen on relaxing conditions to help Canadians get, renew, or refinance a mortgage.

Mark the benefits?

A number of new mortgage rule changes have gone from the federal government's whiteboard to reality — some of them pushed for by the mortgage industry for months or years.

The changes are all geared at allowing home buyers and owners better access — to lower insured and uninsured mortgage rates, more affordable mortgage payments, buying a home with less down payment, or adding a secondary suite to a property.

Here's the list, and how they may affect you and the housing industry.

Here's the list of new mortgage rules.

First, the federal government introduced two major changes aimed at helping more home buyers get their foot in the real estate door by relaxing access to insured mortgages, taking effect on December 15, 2024:

Rule 1. The home-price cap for insured mortgages (requiring less than 20% down payment) is increasing from $1M to $1.5M — opening the door wider to primary and secondary home purchases in more expensive housing markets, like some Ontario centres.

Rule 2. First-timers and new-build buyers can extend their insured mortgages from the standard 25 years to 30 years — helping them qualify for more ‘home’ or lower their mortgage payments (an added insurance premium may apply).

Then, one more big rule change came from the federal banking regulator OSFI (Office of the Superintendent of Financial Institutions), this time to help homeowners with switching their uninsured mortgages at renewal, starting on November 21, 2024:

Rule 3. At renewal time, homeowners with uninsured mortgages (20% down payment or more) don’t have to face the federal stress test when switching lenders for a better deal. (Insured mortgages already have a pass.)

We thought they were done. But another insured mortgage change dropped soon after, this time aimed at allowing current homeowners access insured refinances to build a secondary suite, taking effect January 15, 2025:

Rule 4. Eligible homeowners will be able to access an insured refinance for up to 90% of their 'improved property' value (capped at a $2M home value) for construction funds to build a fully-contained secondary suite, such as a laneway home, or basement or garage suite — and extend to a 30-year amortization.

Make no mistake — these changes are worth a look.

The mortgage industry has been pushing for insured and uninsured mortgage changes for years. Interest rates and home prices have gone up, but some rules haven’t kept pace to help Canadians deal with the realities of today’s housing market.

Dan Eisner, True North Mortgage Founder and CEO, is thrilled to finally see these changes come through. An industry disruptor, he knows full well the challenges home buyers and owners face with both higher interest rates and higher Canadian home prices.

“We’re seeing first-timers finally get some help to bid on a home closer to where they might work,” declares Dan. “Home buying will likely be more attainable, with mortgage payments that are more affordable.”

“And for those homeowners who are dreading a shift into higher rates at renewal,” Dan continues, “qualifying for a switch with just their contract rate might help them get to a better rate and save some mortgage cash.”

Could these changes spur a home-buying frenzy and price increases?

With interest rates expected to drop further, some experts predict increased mortgage transactions as buyers rush to take advantage of the new rules.

Dan suggests that as much as 10% of his clients may opt to purchase sooner rather than later to benefit from these changes.

However, over the long term, he believes the adjustments will help normalize the housing market rather than spark a frenzy.

“The first-time and new-build buyer segments have been quieter recently,” Dan observes. “The insured mortgage rule changes, which aren’t for investors, should help them regain momentum to enter the market.”

Insured refinances haven't been available to homeowners since 2016.

Allowing this mortgage product for secondary suites may spur some to take advantage, resulting in more homes being built quicker, though it's likely not the 'housing density' catalyst the government is trying to promote.

This rule may have a slight impact on local home prices — if homeowners can get past the municipal bylaws or NIMBYism (Not In My Backyard) to get the suite complete. But, it could also result in more rental space to ease demand and bring housing costs down.

Discouraging primary home purchases isn’t the answer.

We’re all aware of our national housing shortage, which keeps Canadian home prices among the priciest in the G7 countries.

But, according to Dan, “Discouraging primary home purchases can upset the owner vs. investor balance even more to keep younger Canadians out of the market, which isn’t healthy for the sector in the long run.”

Housing starts are the real issue. “Governments are actively pursuing initiatives to increase construction to meet the demands of our growing population,” Dan offers. “Calgary and Edmonton are currently leading the way, and hopefully, despite building challenges, other centres can follow.”

Those challenges include construction labour shortages, government and city council red tape and taxes, higher interest rates, and inflationary effects on building supply costs, which interfere with a 'build, build, build' actuality nationwide.

What about the increased interest costs?

While the new insured mortgage rules offer benefits, some experts worry that higher mortgage balances and extended amortizations could lead to increased consumer defaults.

However, Dan remains optimistic, pointing to True North’s track record.

“Even with the rate hikes, our clients prioritize their mortgage payments,” he says. “Homeowners have great pride, and we see them being quite committed to reducing their balances and keeping up with their payments.”

Dan suggests that once home ownership is achieved, amortizations and higher mortgage balances can be worked down as funds become available, reducing interest costs — even through a payment frequency adjustment (if your lender allows the change fee-free).

Insured refinances can help owners gain an extra income source.

Gaining access to rental income could help some budget-challenged homeowners meet or beat their bills, especially in more expensive housing markets, like Mississauga — where mortgage payments tend to be larger due to higher home prices.

While being a landlord may not appeal to all homeowners, the financial ability to create a secondary suite can still help bring in family members or friends who can contribute to home and mortgage expenses.

Multigenerational and co-ownership home-buying alternatives aren't necessarily new, but getting better access to financing through your mortgage, vs. a more expensive line of credit, may offer you a solution that wasn't available before.

Bigger chances to buy, smaller rates to save.

With the new mortgage changes come more decisions for your home purchase or renewal.

It's essential to get expert Realtor and mortgage advice when buying your home, to ensure you have the right fit, both for your potential new digs and for your long-term mortgage, to help you reach your homeowning goals.

Reach out to your trusted local Realtor and mortgage broker for sound advice that helps you save money, time, and stress.