New Mortgage Rules and You
Calgary Real Estate and Rental Market Update
October 1, 2024 - Written by Jamie Palmer, President & Broker of Power Properties
The Government of Canada recently announced several new rules regarding mortgages:
Increasing the CMHC purchase limit to $1.5M
Extending the CMHC amortization to 30 years for all new builds
Extending the CMHC amortization to 30 for all first time home buyers
Borrowers no longer need to pass the stress test when switching lenders at renewal
I will expand on each of these below:
Increasing the CMHC purchase limit to $1.5M
You can now purchase a property up to $1.5 million under the Canadian Mortgage and House Corporation (CMHC) insured mortgage program. Buyers will only require 5% down on the first $500,000 and 10% down on rest of the purchase price. This is up from the previous limit of $1.0 million. Prior to this change you would need at least a 20% down payment to purchase homes over $1,000,000.
The impact on Calgary is limited as the average price for a property in Calgary is only $617,000, but in cities like Toronto and Vancouver, where the average price is over $1,000,000 this will mean first-time home buyers can enter the market with a significantly reduced down payment.
Extending the CMHC Amortization to 30 Years For All New Builds
The increased amortization period for mortgages means lower monthly payments, making homes more affordable for buyers. The focus on new builds is to help support builders and developers in selling their homes and encouraging them to build more.
The offset to this is the longer the amortization period the more interest the buyer will pay. For example, a $600,000 mortgage at 4.5% amortized over 25 years will pay $400,500 in interest, that same mortgage amortized over 30 years will pay $494,440 in interest, almost $100,000 more!
As an investor, the longer amortization may be an appealing way to improve cash flow as it would lower your monthly payments, and interest is a tax deductible expense anyway. So you would improve your cash flow and reduce your taxable income.
Extending the CMHC Amortization to 30 Years For First-Time Homebuyers
Same as above, but this applies to any home a first-time buyer purchases.
Both this and the previous policy changes will impact the rental market. As more renters (often first-time home buyers) are able to purchase homes this will decrease demand for rentals, and renters will become more price sensitive.
Borrows No Longer Need to Pass the Stress Test When Switching Lenders at Renewal
This is great news for all borrowers as it makes it easier to switch lenders when you renew your mortgage. This means you have greater choice and can shop your mortgage around to get the lowest rates.
If your mortgage is coming up for renewal, I would strongly suggest you speak with a mortgage broker as they shop your mortgage for you at no cost. To that end, I can highly recommend
Triston Scott
Cell: 403-606-3249
Email: triston@mortgageconnection.ca
I have worked with Triston for over two decades with great success!
Overall the changes make it easier for first time home buyers to purchase homes, which will increase sales demand and likely fuel further price gains, but will also likely lower rental demand and corresponding prices.