Finance Minister Chrystia Freeland on Monday announced changes to some mortgage rules as part of an effort to make housing more affordable, though some housing experts are doubtful of their long-term impact.
The government will increase the cap on insured mortgages to $1.5 million from $1 million, effective Dec. 15, which would allow more people to buy a house with a down payment below 20 per cent.
Previously, Canadians who do not pay at least a fifth of the cost of the house as a down payment need to take out mortgage insurance, but the insurance was available only for homes priced at $1 million or less. That limit is now $1.5 million.
Minister of Finance Chrystia Freeland says increasing the price cap ‘is going to put the dream of home ownership in reach for more young Canadians.’ Freeland also announced the federal government is allowing 30-year mortgage amortizations for all first-time homebuyers and for all buyers of new builds.
In addition, purchasers will be able to take out loans for a 30-year period if they are first-time home buyers or if someone is buying a newly built house, Freeland said. Earlier, the three-decade amortization period was limited to first-time buyers buying newly built houses.
The measures will “incentivize more new housing construction and tackle the housing shortage,” Freeland said in a statement.
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A good idea — in theory, says Toronto realtor
The announcement was met with mixed reaction from analysts. RateHub.ca mortgage expert Penelope Graham wrote that expanding the criteria for 30-year mortgage amortizations and increasing the insurance cap “will greatly improve first-time home buyers’ access to the housing market.”
She said that under the new rules, buyers can purchase more expensive home types with smaller down payments. But she also said that it’s unclear how the new rules would impact those coming up on their mortgage renewals.
John Pasalis, a Toronto realtor and president of Realosophy realty, said that the changes seem like “a good idea” in theory, because buyers can structure their mortgages over a longer period of time.
But the changes could also stimulate demand, which would likely drive prices up, he said.
“It helps people who maybe need to buy right now because they can spend more and get in the market. But once home prices appreciate, no one really benefits anymore,” Pasalis said.
In Canada, mortgages are typically for 25 years and the rate resets every three or five years. In the United States, homeowners can enjoy a fixed rate for the entire life of a 15-year or 30-year mortgage.
The structure of Canadian mortgages exposes most borrowers to rising interest rates and has helped fuel a housing affordability crisis.
Trudeau’s polling numbers have slumped to an almost all-time low of 30 per cent in September, which analysts and economists have said is primarily because millions of people are wrestling with high prices, especially of homes and rents.