Another Bank of Canada Rate Cut and New Mortgage Rules

Bank of Canada cuts its policy rate once again

In the last interest rate announcement of 2024, the Bank of Canada reduced its benchmark rate by 50 bps, bringing the rate down to 3.25%. The rate cut, which mirrors the last reduction announced in October, comes amidst a slight rise in the inflation rate.

This fifth straight interest rate reduction is positive news for current and prospective Canadian homebuyers, and complements the new mortgage rules that will take effect this month.

New mortgage rules aim to provide relief for more homebuyers

Homeownership has long been a major milestone for Canadians – the “Canadian dream,” if you will. But in recent years, the dream has felt increasingly out of reach. With rising home prices and the high cost of mortgage payments, first-time home buyers in particular have been priced out of homeownership.

But there is good news for both those looking to enter the housing market, as well as homeowners ready to renew their mortgage.

New mortgage rules announced by the Canadian government are designed to help reduce the barriers that exist for first-time homebuyers. Here’s a rundown of the changes and the benefits they offer.

Reduced down payment for homes worth up to $1.5 million

Currently, someone buying a home that costs less than $1 million is allowed to make a down payment of less than 20 percent, provided they take out mortgage insurance. This insurance, which protects lenders from default, allows buyers to finance up to 95% of the home’s purchase price.

However, starting December 15, 2024, new mortgage rules will expand eligibility for mortgage insurance to homes valued at up to $1.5 million. Under these rules, buyers will need to put down a minimum of 5% on the first $500,000 and 10% on the portion between $500,000 and $1.5 million. This means that on a $1 million home, the minimum down payment will drop to $75,000—significantly lower than the current requirement of $200,000.

This change acknowledges the realities of today’s housing market, particularly in high-cost areas such as Vancouver, Toronto and much of Southern Ontario, where homes often exceed $1 million.

More Canadians can quality for 30-year mortgages

Back in July 2024, the government announced that lenders could offer 30-year amortizations on insured mortgages for first-time homebuyers purchasing new builds. As of December 15, 2024, this measure will be extended to all first-time homebuyers, and all buyers of new builds, including condos. By stretching mortgage payments over a longer period of time (30 years instead of the current maximum of 25), homeowners can benefit from lower regular mortgage payments.

Stress test no longer needed when switching a mortgage at renewal

As of November 21, 2024, any mortgage holder looking to switch their mortgage to another lender will no longer need to undergo a “stress test.”

The stress test requires lenders to ensure borrowers can still make their mortgage payments if their interest rate goes up or they experience an increase in household expenses. The policy change means that mortgage holders can switch lenders at renewal without being subject to another stress test, provided they are renewing under the same amortization schedule and loan amount.

The change applies to both insured mortgage and uninsured mortgages and enables more Canadians to switch to a provider that better meets their mortgage needs.

A complement to current programs

These measures are in addition to existing programs and tax benefits that can help pave the way to homeownership for first-time homebuyers.

• First Home Savings Account (FHSA). This registered account allows Canadians to contribute up to $8,000 per year over 15 years, up to a lifetime contribution limit of $40,000 towards their first down payment.  Contributions, including any investment income, are tax-deductible and withdrawals to purchase a first home are not taxable, helping first-time buyers maximize their buying power.

• The Home Buyers’ Plan (HBP). Under the HBP, first-time homebuyers can make tax-free withdrawals from their Registered Retirement Savings Plan (RRSP) to help finance the down payment on a home. The withdrawal is not taxable as long as it is repaid within a 15-year period. The withdrawal limit was recently increased from $35,000 to $60,000. For couples who are buying a home together, that limit reaches $120,000.

• Land Transfer Tax Rebates. Land transfer tax rebates are available to first-time homebuyers in the provinces of Ontario, British Columbia and Prince Edward Island. There is also a land transfer tax rebate available for first-time homebuyers in the city of Toronto. 

• First-Time Home Buyers’ Tax Credit (HBTC). First-time homebuyers can claim up to $10,000 for the purchase of a qualifying home. At a 15% tax rate, the $10,000 claim equals a one-time $1,500 tax reduction.

• GST/HST new housing rebate. If you buy a new-build home preconstruction or make substantial renovations to an existing home, you could qualify for a rebate on the GST or HST. The amount of the GST/HST new housing rebate depends on the purchase price of the home.

The costs of buying and owning a home in Canada have made homeownership a tough hurdle for many Canadians, especially younger buyers trying to enter the market. However, these new and expanded measures are good news for first-time homebuyers, as they provide a more accessible pathway to homeownership.

Mortgage rates and rules are in the news a lot these days. An RBC Mortgage Specialist can provide insight on how updates like these could help ease your homeownership journey, as well as the potential impact of upcoming interest rate announcements. Whether you’re close to buying your first home, aim to purchase down the road, or you’re ready to renew, they can provide advice that is personalized to your financial position and stage in the home buying process.  

Share This Article