The New Mortgage Rules
First-Time vs. Repeat Buyers
In an effort to address housing affordability, particularly for younger Canadians, the Trudeau government has introduced new mortgage rules that will take effect in 2024. These changes focus on making homeownership more accessible, especially for first-time buyers, while promoting new home construction to increase housing supply. Let’s explore the key updates, how they impact first-time and repeat buyers, and what qualifies someone as a first-time buyer.
Key Changes in Mortgage Rules for 2024
The most significant change in the mortgage rules is the introduction of a 30-year amortization period for first-time buyers purchasing newly built homes. This change, which took effect on August 1, 2024, allows buyers to spread their mortgage payments over 30 years, reducing their monthly payments and making homeownership more affordable. The government plans to expand this benefit to all first-time buyers, regardless of whether they are purchasing new or existing homes(Canada.ca).
Additionally, the price cap for insured mortgages will increase from $1 million to $1.5 million, allowing more buyers to qualify for insured mortgages with down payments of less than 20%. This change reflects the rising cost of homes in urban markets (City News Montreal).
Down Payment Rules
- For both first-time and repeat buyers, the structure of down payments remains consistent:
- For homes priced under $1 million, buyers need:
- 5% down on the first $500,000 of the home’s value.
- 10% down on the portion of the home price between $500,000 and $1 million.
For homes priced over $1 million, a minimum 20% down payment is required, and the mortgage will not be insured(Canada.ca)(CityNews Montreal).
While the down payment rules apply equally to both first-time and repeat buyers, first-time buyers have access to special programs and benefits that can make it easier to save for a down payment.
Special Benefits for First-Time Buyers
30-Year Amortization for New Builds: First-time buyers purchasing newly built homes can now opt for a 30-year amortization, giving them more time to pay off their mortgage and lowering their monthly payments. This program aims to promote the construction of new homes and alleviate the housing shortage(Canada.ca)(Ratehub.ca).
Access to Savings Programs: First-time buyers can take advantage of the Tax-Free First Home Savings Account (TFHSA), which allows Canadians to contribute up to $8,000 annually, with a lifetime limit of $40,000, towards their first home. Additionally, the Home Buyers’ Plan (HBP) allows first-time buyers to withdraw up to $60,000 from their RRSPs to fund their down payment(Canada.ca).
New Construction Exemptions: The 30-year amortization period initially applied only to newly constructed homes, but it will soon be available for all first-time buyers, regardless of whether the home is newly built or an existing property(CityNews Montreal).
Differences for Repeat Buyers
- Repeat buyers are not eligible for many of the benefits available to first-time buyers. Here’s what they need to know:
- No Access to 30-Year Amortization: The extended 30-year amortization period is reserved for first-time buyers. Repeat buyers are typically limited to the standard 25-year amortization unless they make a 20% down payment, which can qualify them for longer amortization options depending on the lender(Ratehub.ca).
- No Access to Special Savings Programs: Programs like the TFHSA and the enhanced HBP are only available to first-time buyers, meaning repeat buyers must rely on traditional savings methods without the tax benefits(Canada.ca).
Who Qualifies as a First-Time Buyer?
- A first-time buyer is defined as someone who meets at least one of the following criteria:
- Has never owned a home: You’ve never purchased or owned a residential property before.
- Has not owned a home in the last four years: If you previously owned a home but haven’t lived in one you (or your spouse or common-law partner) owned in the last four years, you can qualify as a first-time buyer.
- Experienced the breakdown of a marriage or common-law partnership: Even if you’ve owned a home before, if you’ve recently gone through a separation or divorce, you may still qualify as a first-time buyer(Canada.ca)(Ratehub.ca).
It’s important to note that owning an investment property that you do not live in does not disqualify you from being considered a first-time buyer. As long as the property was not your primary residence in the last four years, you may still qualify for first-time buyer benefits(Canada.ca).
Conclusion
The new mortgage rules aim to address affordability challenges for first-time buyers while promoting the construction of new homes. With the introduction of the 30-year amortization period and higher insured mortgage caps, more Canadians—especially younger ones—will find it easier to enter the housing market. While repeat buyers may not benefit from all these changes, the overall shift towards increased housing supply and affordability will have positive effects on the broader market.
If you’re a first-time buyer, now is the time to explore these new opportunities and take advantage of the available programs. And if you’re a repeat buyer, while the new rules may not apply directly to you, the growing housing supply and competitive mortgage environment could still work in your favor.
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