Big week for mortgage rules: Feds announce key reforms

It’s been a big week for mortgage news, with both the federal government and OSFI rolling out important updates.

The government has shared more details on its mortgage reforms, like extending 30-year amortizations and raising the insured mortgage cap. At the same time, Canada’s banking regulator, OSFI, is removing the stress test for uninsured mortgage switches.

If you’re thinking about buying a home or renewing your mortgage, here’s what these changes mean for you.

What’s changing?

Three major reforms are set to take effect soon:

1. 30-year amortization expansion

First-time homebuyers and buyers of newly constructed homes will now be eligible for 30-year amortizations on high loan-to-value mortgages (those with a down payment of less than 20%). This means lower monthly payments for borrowers, making homeownership more accessible.

To qualify as a first-time homebuyer, you must meet one of the following:

• You’ve never purchased a home before.
• You haven’t owned or lived in a principal residence in the last four years.
• You’ve experienced a marriage or common-law partnership breakdown, as defined by the Home Buyers’ Plan.

For newly constructed homes, the property must not have been previously occupied, though interim occupancy periods in new condos will not disqualify eligibility.

2. Mortgage insurance cap increase

The price cap for insured mortgages is rising from $1 million to $1.5 million, allowing more buyers to qualify for high loan-to-value mortgage insurance.

• To be eligible, the property must have a value of $1,499,999 or less.
• The down payment structure will remain as it is currently:
• 5% for the portion of the purchase price up to $500,000.
• 10% for the portion between $500,000 and $1.5 million.

This increase is especially beneficial for buyers in higher-priced markets like Toronto or Vancouver, where homes are often priced above the previous $1 million cap.

3. OSFI removes the mortgage stress test for switches

As of November 21, 2024, OSFI (Office of the Superintendent of Financial Institutions) will remove the mortgage stress test requirement for uninsured straight mortgage switches.

The mortgage stress test, introduced in 2018, was designed to ensure borrowers could handle future interest rate increases. It required borrowers to qualify at the higher of either:

• The Bank of Canada’s five-year benchmark rate, or
• Their mortgage rate plus 2%.

This was required for borrowers with uninsured mortgages, meaning those who had put down 20% or more on their home.

With the upcoming change, if you're switching to a new lender at the time of renewal (known as a "straight switch"), you won’t have to pass the stress test again, as long as you're keeping the same loan amount and amortization schedule. This change is designed to make it easier for borrowers to shop around for better mortgage rates at renewal without having to prove they can afford a higher rate.

When will these changes take effect?

• The federal government’s changes to 30-year amortizations and the increased mortgage insurance cap will take effect for applications submitted on or after December 15, 2024.
• OSFI’s removal of the mortgage stress test for uninsured straight mortgage switches will take effect on November 21, 2024.

What do these changes mean for you?

These reforms could make homeownership easier and more affordable for many Canadians. Whether it’s qualifying for a larger mortgage with a smaller down payment or benefiting from longer amortization periods, these changes could help make buying or renewing a mortgage more manageable.