Government Increases Cap on Insured Mortgages to $1.5 Million

In a significant move for the Canadian real estate market, the government is set to increase the cap on insured mortgages from the current limit to $1.5 million, effective December 15, 2024. This change is bound to have a profound impact on homebuyers, particularly in high-demand real estate markets where property prices have surged over recent years.

What Is an Insured Mortgage?

An insured mortgage is a home loan that is protected by mortgage insurance. This insurance ensures that the lender is protected in case the borrower defaults on the loan. In Canada, buyers who make a down payment of less than 20% of the home’s purchase price are required to get mortgage insurance, which is typically provided by the Canada Mortgage and Housing Corporation (CMHC), Genworth Canada, or Canada Guaranty.

The mortgage insurance allows individuals to qualify for a mortgage even if they do not have the traditional 20% down payment. However, the amount that can be borrowed under an insured mortgage has been capped for years, limiting some buyers’ purchasing power in markets where home prices have skyrocketed.

The Impact of the New $1.5 Million Cap

With the government’s announcement of increasing the insured mortgage cap to $1.5 million, more homebuyers will be able to access financing for higher-priced properties without needing to save up for a larger down payment. This is especially significant in cities like Toronto and Vancouver, where average home prices frequently exceed $1 million.

Here’s what the change means for different types of homebuyers:

• First-Time Buyers: First-time homebuyers will have a better chance of purchasing homes in competitive real estate markets. Many first-time buyers struggle to save the 20% down payment required to avoid mortgage insurance, especially for properties above $1 million. The new cap provides them with more flexibility and access to properties they may have previously been priced out of.
• Resale Buyers: Homeowners looking to sell and upgrade to larger homes will also benefit. Those selling homes valued close to $1 million can now consider moving into higher-priced homes while leveraging insured mortgages for the purchase.
• New Construction: This change is also expected to boost demand for newly constructed homes, as buyers who are interested in new builds will be able to finance their homes with insured mortgages even if the property value exceeds the previous cap.

The Role of 30-Year Amortization

Another key point to note is the 30-year amortization option available for first-time homebuyers, resale properties, and new construction homes. An extended amortization period allows borrowers to spread out their mortgage payments over a longer period, reducing monthly payments and making homeownership more affordable.

A longer amortization period also means:

• Lower monthly payments: This can help homebuyers manage cash flow and reduce the financial burden of homeownership. While you will end up paying more interest over the life of the mortgage, it makes owning a home more accessible to a larger group of people.
• Easier qualification for a higher loan amount: With lower monthly payments, more buyers may qualify for higher loan amounts, helping them to purchase homes in more desirable neighbourhoods.

As with all government-backed programs, certain conditions and qualifications will apply. Mortgage insurance providers like CMHC, Genworth, and Canada Guaranty will continue to set guidelines for eligibility. Factors like debt-to-income ratios, credit history, and the size of the down payment will still play a role in determining who qualifies for an insured mortgage under the new limit.

Conclusion: A Boost for Homebuyers

The upcoming increase in the insured mortgage cap to $1.5 million is a welcome change for many homebuyers in Canada, especially those in high-priced markets. Combined with the option for a 30-year amortization, it provides more flexibility and affordability for those looking to purchase their first home, upgrade, or invest in new construction. As the real estate landscape continues to evolve, these new measures will help keep the dream of homeownership within reach for more Canadians.

If you’re considering buying a home, it’s essential to understand how these changes can benefit you. Contact a mortgage professional today to learn how you can take advantage of the new cap and make the most of this exciting opportunity.