What Canada’s New Mortgage Rules Mean For Home Affordability

The Trudeau government has just today announced new changes to the mortgage rules that are intended to make homes more affordable for Canadians and also incentivize new homebulding.

They introduced two significant changes:

• Increasing the cap for insured mortgages from $1M to $1.5M. This means that buyers will be able to purchase houses up to $1.5M with as little as 5% down.
• Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds. This means that first time homebuyers and new build homebuyers will be able to take advantage of 30 year mortgages and the lower monthly payments associated with them.

The effect of both of these changes is to increase the amount of loan money available to homebuyers, enabling them to buy more house for the same downpayment and income. Let’s have a look at how this plays out in real life scenarios:

Earlier this summer, buyer with a $4,000 per month mortgage budget and a down payment of $100,000 could afford a $765,000 house (25 years at 5.25% interest rate).

As of now, the same buyer with the same budget can afford approximately $820,000 due to the drop in interest rates that has occured over the summer (25 years at 4.5%).

Under these new changes, if our buyer is a first-time homebuyer, they will be able to afford approximately $900,000 now on that very same budget (4.5% on a 30 year term).

That’s an increase in purchasing power of $135,000 – or 17% – in just a few months. 

Taken all together, this is a huge increase in affordability for new home buyers over the past few months.

There’s just one catch to this latest announcement though.

It goes into effect on December 15th. 

Which means that if there is an election this fall, as many suspect there will be, and the Liberals lose, then these policies might not come into effect.

Rather than leaving off with speculation on whether this is a political move or not, I’m going to ask a question to you?

How do you think this will affect the market?

And how will this affect your real estate plans going into 2025?

I look forward to hearing your responses.