What Canada’s New Mortgage Rules Mean for Homebuyers and the Housing Market

The federal government is extending mortgage amortizations for more homebuyers. It’s also upping the limit for insured mortgages. Here’s what you need to know.

By Josh Sherman | 3 minute read

The latest rule changes follow other recent announcements meant to give Canadian homebuyers a leg up and improve housing affordability.

Forthcoming changes to Canadian mortgage rules will benefit some homebuyers and owners, but the policies may ultimately drive housing prices higher by creating more demand, market-watchers warn.

“We’re going to have way more demand than supply, so we should see higher prices,” Alex Leduc, founder and CEO of Perch Mortgages, tells Wahi. “It’s going to be an affordability challenge,” he adds.

On Sept. 16, the federal government announced two reforms, effective Dec. 15. Here’s a breakdown of the changes and how they may impact Canadian homebuyers and the housing market.

30-Year Mortgage Amortizations for More Homebuyers

The government is expanding the eligibility for 30-year amortizations to all first-time homebuyers, regardless of the type of home they are purchasing. The same goes for all buyers of new builds. (The amortization is the period of time that a borrower has to pay back a mortgage.) Earlier this year, as part of the 2024 federal budget, the Canadian government already began allowing 30-year mortgage amortizations for first-time homebuyers — but only if they were purchasing a new build. Prior to the earlier change, only homeowners with at least 20% equity in their property had access to 30-year amortizations.

By extending the mortgage term by an additional five years, borrowers can potentially shave hundreds of dollars off of their monthly payments. However, a longer amortization can also mean paying tens of thousands of dollars — or more — in additional interest, cautions Wahi CEO Benjy Katchen. “Homebuyers should weigh downsides to longer amortizations, such as paying more interest and taking longer to build equity, with potential price appreciation and possibly affording home ownership many years sooner,” he says.

While the rule change should help some would-be homebuyers who were just short of being able to afford a home, those who could already afford one have the ability to act more aggressively in the market. “The 30-year amortization will give first-time homebuyers a slight edge to bid a higher price,” says Leduc.

However, Leduc adds, at least some of the reductions in monthly mortgage payments are going to be offset by higher home prices. The market should get more competitive as a result of the very homebuyers the policies are meant to help.

Raising the Cap on Insured Mortgages to $1.5 Million

Come mid-December, Canadian homebuyers will be able to obtain insured mortgages for homes priced up to $1.5 million. In Canada, homebuyers who don’t have a downpayment of at least 20% require mortgage insurance. Currently, mortgage insurance is limited to homes purchased for $1 million or less.

In Toronto and Vancouver, the $1-million cap on insured mortgages means that many homebuyers have been locked out of purchasing detached or semi-detached homes. 

Leduc expects the increased limit to stoke demand for these types of homes in particular. “I think the biggest benefactor of this policy is going to be anybody who owns a $1 million to 1.5 million home,” he says. That’s because the pool of potential buyers shopping in this price range has increased. Consequently, Leduc expects home prices in this range to appreciate the most as a result of the rule change.

Among certain first-time homebuyers, the rule change could mean skipping the starter condo and beginning the ownership journey with a single-family home.

Specifically, Leduc says, the policy rewards households in expensive markets who have annual incomes of $200,000 to $300,000 but lack the $200,000 or more needed for a downpayment on a detached or semi-detached home under the current restrictions. “For that group, this is fundamentally going to be a huge change,” he explains. Some two million Canadian households earned more than $200,000 in 2022, according to data Statistics Canada provided to Wahi.

However, given the median after-tax household income in the country is $70,500, also according to Statistics Canada, higher insurable mortgage limits clearly aren’t going to be a game-changer for Canadian housing affordability overall. “For anybody who’s already not able to qualify, this literally does nothing for them,” Leduc adds. “It’s really more to benefit the middle class than anyone else.”