Regulatory changes applicable from December 15, 2024 by OSFI aimed at benefiting First Time Home Buyers, and Home Owners with mortgages Maturing for Re-Negotiation.

These updates reflect the federal government’s expanded eligibility criteria for for high-ratio insured mortgages allowing first time home buyers to purchase with less than 20% down payment, and are designed to help more Canadians achieve their dream of homeownership. In my opinion these rules will have limited impact to benefit home buyers, and is evidently more a political publicity stunt gearing up for coming elections. 

“The Liberal government is now panicking over housing because the Conservatives are owning the housing fight,” CIBC economist Benjamin Tal said during a recent talk. “Everybody realizes that housing is the number one file and will be determining who is going to govern after the next election,” he added. “There could be more moves coming in the fiscal update.”

Extended Amortization Options 

Maximum 30 year amortization (previously 25 year) will now be available for:

• First-time homebuyers OR 
• Borrowers that are purchasing a new build property.

* Property must be owner-occupied or occupied by a family member on a rent-free basis. 

First-time homebuyers are defined as:

• A borrower that has never purchased a home before, OR 
• A borrower that has not occupied a home as a principal residence that either they themselves or their current spouse or common-law partner owned in the last 4 years, OR 
• A borrower who recently experienced the breakdown of a marriage or common-law partnership.

Increased Maximum Property Value 

The maximum purchase price for high-ratio insured mortgages (LTV greater than 80%) has increased to $1,499,999 (Previously $1 Million).

Please note downpayment requirements for the loan are as follows:

• 5% down payment on the portion of a purchase price up to $500,000.
• 10% down payment on the remainder of the lending value (i.e. purchase price between $500,000 and under $1,499,999).

Eligible Applications 

These changes apply to:

• New applications on or after December 15th, 2024
• Existing applications resubmitted to the insurer on or after December 15th, prior to full advancement of the loan
• Both changes will apply to applicants requiring high-ratio mortgage insurance (required when purchasing with a loan-to-value greater than 80%).

Summary of Key changes:

30-year amortization for insured mortgages

Starting 30-year amortizations will be available for insured mortgages. This option is open to first-time homebuyers and those purchasing newly built homes, including condos.

Higher insured mortgage limits

Applications for insured mortgages will now be accepted for properties valued under $1.5 million, giving more buyers access to high-value homes with lower down payment requirements.

Renewal Mortgage Stress test simplification

Eligible insured transfers and switches will be qualified at the contract rate. Current stress test requirements will continue for insurable, uninsurable, and uninsured applications.

Benefits to You:

Reduced monthly payments

Extending amortizations to 30 years will lower monthly payments allowing higher affordability amidst rising living costs and fluctuating interest rates.  However increased amortization results in more interest paid over the life of the loan, and also a higher mortgage default insurance premium resulting in an increased cost of borrowing.

Expanded opportunities for buyers

Higher insured mortgage limits make it possible for more Canadians to purchase homes in competitive urban markets like Toronto and Vancouver. Reality however, very few first-time home buyers are purchasing close to or above $1 Million in purchase price.

More options at maturity

Qualifying at contract rate to transfer/switch your mortgage to a new lender to obtain better rates and lower payments, as opposed to having to qualify at higher benchmark rates under current lending rules to could force you to renew with your current lender if you don’t qualify. 

The Surge In Canadian Unemployment Keeps Another Jumbo Rate Cut In Play In December The BoC slashed the overnight rate by 50 bps this morning, bringing the policy rate down to 3.25%. The market had priced in nearly 90% odds of a 50 bp move, where consensus coalesced. The combined slower-than-expected GDP growth and a sharp rise in the Canadian unemployment rate to 6.8% triggered the Bank’s second consecutive jumbo rate cut. Today’s move will take the prime rate down 50 bps to 5.45% effective tomorrow, reducing floating rate mortgage loan rates by a half point, easing the cost of borrowing and reducing the monthly payment increase for renewals. This should spark housing activity, which accelerated in October and November. The policy rate is now at the top of the estimated neutral rate range, 2.25% to 3.25%, with more moderate rate cuts continuing into next year. However, monetary policy remains restrictive, as the 3.25% policy rate is still 125 basis points above inflation, which has declined to roughly 2%, the Bank’s inflation target. Economists have suggested that the tone of the central bank’s press release is more hawkish than before, unsurprising following two consecutive jumbo rate cuts. The Bank continues to say that its future decisions are data-dependent and will be impacted by policy measures taken by the government. In particular, the Bank highlighted the coming GST cuts, dispersal of bonus checks and the significant reduction in immigration. These developments have offsetting implications for inflation. Governor Macklem signalled that he anticipated “a more gradual approach to monetary policy” in his press conference. We are forecasting 25 bp rate cuts through at least the first half of next year. That would take the overnight rate down to 2.5% by early June, a huge boost to housing that will likely enjoy a strong spring season. Bottom Line Monetary policy remains overly restrictive as the 3.75% overnight policy rate remains well above the inflation rate. We expect the overnight rate to fall to 2.5% by April or June of next year. This should continue boosting housing activity, which increased significantly in October and November. Last week’s GDP data release showed that Canada’s third-quarter GDP grew a mere 1.0%, well below the Bank’s downwardly revised forecast of 1.5%. This, in combination with today’s employment report, bodes well for the Bank of Canada to consider cutting rates by another 50 bps seriously. However, given how aggressive they have been compared to the Federal Reserve, which will undoubtedly cut rates by only 25 bps in late December, they could be satisfied with a 25 bp cut for now. Dr. Sherry Cooper Chief Economist, Dominion Lending Centres

Access the full article here: https://dominionlending.ca/economic-insights/the-bank-of-canada-cuts-its-policy-rate-by-another-50-basis-points