An extensive lineup of programs supporting first-time homebuyers

First-Time HomebuyersMortgage Tips

Jan 10

Written By Jessica Kee

**New mortgage rules: what you need to know**.
As of December 15, Canada introduced significant changes to mortgage rules aimed at improving housing affordability and easing financial pressures for homebuyers. These updates are part of a broader government effort to address the ongoing housing crisis, with more potential measures expected in the coming weeks.

Here’s a breakdown of the new mortgage rules and what they mean for homebuyers:

Key changes to mortgage rules:

Increased insured mortgage cap: The maximum limit for insured mortgages has risen from $1 million to $1.5 million. This change allows buyers in higher-priced markets like Toronto and Vancouver to qualify for mortgage insurance with a smaller down payment. The new down payment structure is as follows:

5% on the first $500,000 of the home price
10% on the portion between $500,000 and $1.5 million
For example, buying a $1.5-million home now requires a $125,000 down payment, significantly lower than the previous $300,000 required for uninsured mortgages.

New Down Payment Structure:
- 5% on the first $500,000 of the home price
- 10% on the portion between $500,000 and $1.5 million

Example: A $1.5-million home now requires a $125,000 down payment, compared to $300,000 previously required for uninsured mortgages.

2. **Expanded 30-year amortizations**:

Eligibility for 30-year amortization periods on insured mortgages has been expanded to include all first-time homebuyers and those purchasing new builds. The loan-to-value ratio must be 80% or higher to qualify. This offers homebuyers lower monthly payments and more manageable mortgage terms. First-time buyers must meet certain criteria, such as not having owned a home in the last four years or having experienced a marriage breakdown.

**Helping first-time buyers:**
These changes are part of a broader set of initiatives designed to support first-time homebuyers:

**First Home Savings Account (FHSA):**
This account, introduced in 2023, allows Canadians to save up to $8,000 per year, with a lifetime cap of $40,000, towards their first home. Contributions are tax-deductible, and withdrawals are tax-free when used for purchasing a home.
**Home Buyers’ Plan (HBP):**
This program allows first-time buyers to withdraw up to $60,000 ($120,000 for couples) from their RRSPs for a home down payment, tax-free. The recent increase in the withdrawal limit makes this a valuable tool for homebuyers.
**Land Transfer Tax Rebates:**
Available in Ontario, British Columbia, Prince Edward Island, and Toronto, these rebates help reduce the cost of buying a home for first-time buyers.
**First-Time Home Buyers’ Tax Credit (HBTC):**
This credit helps reduce the costs of purchasing a home by offering a non-refundable tax credit, now up to $10,000, equating to a $1,500 income tax reduction.
**GST/HST New Housing Rebate**:
This rebate helps with the GST or HST on new-build homes, pre-construction purchases, or major renovations.

**The new rules are expected to have a range of effects on the housing market:**

**Potential for increased housing demand:** The extended amortizations and higher insured mortgage cap could boost demand in high-priced markets like Toronto and Vancouver. However, the required high-income levels for these mortgages may limit the impact to a smaller pool of buyers.
**Mixed reactions:** While some experts praise the reforms for helping buyers facing higher mortgage rates, others express concerns about the long-term financial effects, particularly the potential for buyers to remain in debt longer, increasing the total interest paid over time.

What to expect moving forward:

TD Economics suggests that the new measures could lead to an uptick in home sales and prices in 2025, although the effects may be modest. The expanded 30-year amortization could increase a buyer’s purchasing power by around 9%, which is similar to a small interest rate cut. However, the impact will mainly be felt by first-time buyers with insured mortgages, a group that has been shrinking over the past few years.