Bank of Canada Interest Rate Announcement and New Mortgage Rules: What it Means for Homebuyers and Owners

Homeownership is a much-aspired-to milestone for Canadians. Yet in today’s housing climate, the barriers prospective buyers face – especially among the Millennial and Gen Z population – have been significant. In the last decade, mortgage payment costs, housing prices and supply shortage have conspired to put homeownership out of reach for many young buyers. At the same time, a hot rental market in many Canadian communities has meant limited supply and high prices for renters.

Recent changes to the mortgage landscape are helping to make the path a little easier for all. For one, the Bank of Canada’s interest rate reductions are helping to bring down the cost of borrowing on many mortgages, loans and lines of credit. The latest interest rate announcement, which revealed a reduction of 25 basis points, continues to signal good news for both current and prospective buyers — in the last year, rates have come down from 5% to 3%.

The interest rate environment aside, the recent Government of Canada mortgage reforms should have a meaningful impact on buyers and owners. Targeting the housing supply issue, as well as affordability in major Canadian cities, the reforms are intended to boost new home construction (the government has a plan to build nearly 4 million homes by 2031), add rental units to a densifying Canada and help more Canadians qualify for a mortgage.

What are the mortgage rule changes?

30-year mortgage amortizations for all buyers of new builds: For Canadians buying a new construction home, the government is allowing 30-year mortgage amortizations – an increase from the standard 25-year amortization period. 

Increase to the insured mortgage price cap from $1 million to $1.5 million: To reflect current housing market realities, particularly in Canadian urban hubs.  

Insured mortgage refinancing to add unit(s) to an existing home: To make it easier for homeowners to add 1-3 rental spaces to their homes, for example basement apartments, or secondary suites such as Accessory Dwelling Units (ADUs) or laneway homes.

What do these changes mean for me?

These mortgage reforms have impacts across several groups:

Buyers of new construction homes

With the introduction of 30-year mortgage amortizations for all buyers of new builds, including condos, Canadians have the opportunity to reduce the cost of their monthly mortgage payments. Moving from a 25-year amortization to a 30-year amortization effectively spreads out regular mortgage payments over a longer period of time.

For example, a homeowner with a $650,000 mortgage at a 5% interest rate and 25-year amortization would have a monthly payment of $3,780.44. At a 30-year amortization, this monthly payment comes down to $3,468.99 – a difference of over $300 per month.

Buyers of homes of $1 – $1.5 million

Before December 15, 2025, homebuyers looking to purchase a home over $1 million had to put at least 20 % of the home’s purchase price as a down payment. This is because mortgage default insurance – which allows people with down payments of less than 20% take out a mortgage – was limited to homes valued at $1 million or less. (Mortgage default insurance protects the mortgage lender if the borrower defaults on their mortgage).

Given the cost of homes in the country’s more expensive cities, such as Toronto and Vancouver, this $1 million price cap made it difficult for buyers to enter the housing market.

Today, buyers can buy a home worth up to $1.5 million without having to put down 20% or more. Under the new rules, buyers are required to put down 5% on the first $500,000 of the home’s value and 10% for the remaining, up to $1 million, when taking out an insured mortgage. This means, on a $1.5 million home, the down payment requirement drops from $300,000 to $125,000.

Homeowners looking to add units to their existing home

Effective January 15, 2025, homeowners may be able to refinance their property with an insured mortgage to allow them to add more living units, with insurance for up to $2 million in property value after redevelopment. As default-insured mortgages often have the lowest interest rates on offer in Canada, this change makes it easier for homeowners to leverage their property’s equity, generate rental income and help ease the crunch on housing supply.

For those looking to take advantage of this change and add units to their home, there are certain parameters. Borrowers must:

• Already own their properties

• Occupy one of the current units (a close relative may also be the occupant)

• Intend to construct additional units (to a maximum of 4 units, including the existing)

Further, the additional unit(s) must not be used as a short-term rental.

Secondary units on existing properties, or ADUs, offer a promising solution to the nation’s housing challenges, providing homeowners and municipalities with innovative ways to increase housing supply while preserving neighbourhood character. But the process will be new for many homeowners, who may be unsure of how best to move forward. Resimate, a Canadian company specializing in digitally assessing the suitability of a residential lot for ADUs, can help simplify the process for those interested in redeveloping their property.

Bottom line: The new mortgage rules are designed to make it easier for more Canadians to own, refinance or rent a home in today’s market. Whether you’re looking to buy your first home, your next home, or build additional units at your current property, an RBC Mortgage Specialist is available to help you bring your ideas to life.

When is the next Bank of Canada announcement?

Interest rates aren’t the only factor that affect housing affordability, but they can have a meaningful impact. Staying up to date on the interest rate environment can help buyers and owners make the right mortgage decisions for their current and future needs.

The next Bank of Canada interest rate announcement is March 12, 2025.

Share This Article