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The federal government has made major changes to Canada’s mortgage policies.

This has sparked much debate in the real estate and financial markets. 

These reforms aim to improve housing affordability and stimulate the market.

Honestly, they also aim to win some votes.

They expect to impact high-cost areas, especially Toronto and Vancouver. 

Now, Let’s dive in.

One of the most notable changes is the increase in the price cap for insured mortgages from $1 million to $1.5 million.

This is the first major change to the insured mortgage cap since 2012.

It’s a response to soaring home prices, especially in Vancouver and Toronto.

There, average prices exceed the old cap.

This move will allow more buyers to access the $1M – $1.5M home market with smaller down payments.

A $1.5 million home will now require only $125,000 (8.33%) down, instead of the $300,000 for uninsured mortgages.

This is a game-changer for high-income earners that have struggled to keep up with rising home prices.

It gives them quicker access to the market.

This policy will likely raise demand.

It will drive up prices in competitive markets, unless homebuilding catches up.

This policy helps buyers in the $1 to $1.5 million range.

But, it may increase competition in the mid-to-high end of the market, especially for first-time homebuyers. 

However, the qualifying parameters make this tough.

At the $1.5 million limit, the required household income is about $327,000.

The mortgage also has a $57,750 insurance premium.

It is a very particular slice of the market that this policy helps.

One that the current government is also eager to win over as voters.

Another major reform is the return of 30-year amortizations for first-time and new construction buyers.

This policy makes homeownership cheaper for more buyers.

On a $400,000 home, this change could cut monthly payments by 9%.

That’s nearly $200 in savings.

First-time buyers, a large part of the market, will likely use this policy change to bump up their budgets.

They will use it to buy more expensive homes, adding liquidity to the resale market.

For new homes, the 30-year amortization option could spur new projects.

It would encourage developers to build more housing, addressing Canada’s housing shortage.

However, this measure’s success will depend on economic conditions and demand for new builds, especially in Ontario and British Columbia.

To qualify for the 30-year amortization on an insured mortgage, the criteria are below:

First-time homebuyer, a borrower must meet one of the following criteria:

• The borrower has never purchased a home before;
• In the last 4 years, the borrower has not occupied a home as a principal residence that they or their current spouse or partner owned; or,
• The borrower recently experienced the breakdown of a marriage or common-law partnership. Here, the regulations will follow the approach used by the Home Buyers’ Plan.

Newly constructed home 

• A newly constructed home must not have been previously used for residential housing.

A key goal of these reforms is to boost home building.

This is especially true in urban centers, where demand outstrips supply.

The government wants to motivate builders to re-enter the market.

Their goal with these policies is to expand the buyer pool for newly built homes.

This is critical now.

Many developers have paused new projects due to market uncertainty and high costs.

Raising the purchase power from $1 million to $1.5 million aims to encourage condo developers in cities like Toronto and Vancouver.

They want them to build larger units for young families.

With single-family homes too expensive, we need more affordable solutions designed to serve the end users – not investors.

They need to be spacious enough for families.

Larger condos can serve as a more viable alternative for those who are priced out of detached homes, which are seeing continuous price growth.

If successful, this could help ease some of the supply and affordability pressures that have been driving shelter inflation.

These reforms aim to make homeownership more accessible. But, they risk further inflating already high home prices. 

We must watch how these policies play out, especially in Toronto and Vancouver’s high-end markets – and the impact on new construction. 

If you’re a homebuyer, now is the time to reach out.

Especially, if you were previously capped at the $999,999 insured limit, this could affect your buying power and financial plan.