The federal government has made two significant changes to lending rules to make home-buying more accessible for new buyers. First, they’ve increased the amortization term on a mortgage to thirty years. Second, they’ve increased the maximum amount for an insured mortgage from one million to one and a half million dollars.
These two changes will significantly impact homebuyers who previously had been searching for a home for under one million. Simply put, they will require a smaller downpayment than previously. A buyer of a 1.5 million dollar home must have a minimum of $300,000 down payment. As of December 2024, they only require $125,000. This works well for buyers with high monthly incomes who haven’t been able to save up a ton of money for the downpayment. Many buyers currently fall into this category, mainly because the sky-high rental costs make saving extra money difficult.
Lowering the minimum downpayment amount, in turn, makes the mortgage larger and, therefore, the monthly payments larger. Buyers can also now opt for a thirty-year amortization term to reduce the monthly costs of the mortgage.
These changes to CMHC are geared at getting homebuyers into houses. However, the obvious downside is that the consumer will take on more debt. A thirty-year amortization means less of their money goes towards the principal debt versus the interest.
This will have an impact on the Toronto housing market as well. We expect houses priced at 1.5 or less to become more valuable because there will be a larger buyer pool. This could push prices up in other market segments in time. These changes, coupled with lowered interest rates, indicate that prices may start to rise in 2025. However, Toronto’s luxury market (anything over three million) will likely remain steady. We don’t expect the frenzied buyer market in the sub 1.5 million range to have a significant upward pressure on the higher prices.
Everyone agrees that buying a home should be more accessible to more people. These changes may achieve parts of that goal, but they ultimately allow first-time homebuyers to take on larger amounts of debt, which is fine in a strong market and scary in a market downturn.
Always remember that no matter what happens in the market, the right time to buy a house is when you need a new one. Happy hunting!
