The federal government has been under immense pressure from opposition parties to increase affordability, so to cap off 2024, they have announced several changes that came into effect on December 15th.
The most notable changes involve high-ratio insurance mortgages, both of which will primarily affect first-time home buyers purchasing homes.
Increase to Maximum Eligible Home Purchase Amount
The first change increased the maximum eligible home purchase amount from $1 MM to $1.5 MM.
Previous to this recently announced change, prospective buyers would have to put a minimum of 20% down payment when purchasing a home with a price greater than 1 million. Only purchases of less than a $1 MM qualified for down payments of less than 20%.
I’ll give an example of what the practical effect of this change would have on a purchaser of a $1.2 MM property before and after the change.
Prior to the change the minimum down payment would have been $240,000
Following the change, a buyer could put down as little as 5% on the first $500,000 and then 10% on the remaining $700,000, or $25,000 on the first $500,000 and an additional $70,000 on the remainder, for a total required down payment of $95,000. So, instead of having to save $240,000 that same buyer will now only have to save $95,000, equaling a $145,000 reduction in required savings.
The only downside to this change is that the insurance premium on this mortgage will be quite substantial. The mortgage amount required following the $95,000 downpayment would be $1,105,000. The insurer (CMHC) charging a 4% premium would add an insurance premium of $44,198.40 to the mortgage balance for a total mortgage amount of $1,149,158.40.
Increase to Maximum Amortization Period
The second part of the announcement is an increase in the maximum allowable amortization period from 25 years to 30 years.
Under the old maximum amortization of 25 years, the payment using an interest rate of 4.5% on the above mortgage would be $6,360.51 monthly.
Using the new maximum amortization of 30 years, the payment using the same interest rate of 4.5% would be $5,805.59 monthly, a difference of $554.92 monthly.
The 30-year amortization option is available for first-time home buyers for all eligible purchases and all buyers of newly built homes and condos. First-time home buyers can access this for both new and resale properties.
While not seen as sweeping changes to increase affordability for the average first-time purchaser, these notable changes should help some higher-income purchasers who are a little short on their down payment to get into the market sooner.
For any questions about your current situation or how these changes will affect you personally, please reach out and we can assist you!