If there’s one thing we can unanimously agree on as mortgage brokers, it is that we don’t like surprises. And yet, 2024 has been a year of them…lucky us. However, some of these “surprises” are good for our clients so we guess it’s worth it.
Here’s a rundown of all the changes impacting homebuyers and homeowners.
TL:DR: There are a lot of changes happening for both first-time buyers and current homeowners. Talk with a mortgage broker to figure out if they apply to you.
First-Time Buyers: 30-Year Amortization on New Builds
The government decided first-time buyers could use a break (finally) and extended the amortization period to 30 years when buying a new-build home.
Amortization: The number of years your mortgage is paid off if you were to make regular payments of interest + principal. A longer amortization period typically reduces the monthly payment amount.
We should note that a 30-year amortization isn’t a new thing. It’s typically only available for those who have more than a 20% down payment (uninsured mortgage).
With this rule change, the 30-year amortization is available for those with less than a 20% down payment (insured mortgage). But, there is a cost to extending the amortization.
The Canadian Mortgage and Housing Corporation (CMHC), which is responsible for providing mortgage default insurance for insured mortgages, has added a premium surcharge to these mortgages of 0.20% of the mortgage amount…something to do with capital impact with longer amortizations.
Expanding on this rule, ALL new homebuyers who want to buy a home can extend an insured mortgage to 30 years (check with your broker if you fit under this category of new homebuyer).
This won’t start until December 15, 2024, so if you are looking at buying, now is the time to start the process.
First-Time Buyers: Increase to Insured Mortgages
You may have noticed that home prices have increased over the last few years.
In addition to the rule above, CMHC has increased the price cap of insured mortgages from $1M to $1.5M for first-time buyers of ALL types of homes.
What does this mean? It means that first-time buyers and secondary home buyers will be able to buy a home up to $1.5M with less than a 20% down payment.
Buyers require a 5% down payment on the first $500,000 and 10% on the remaining amount. Your down payment requirement for a $1.5M home would be:
5% on $500,000 = $25,000
10% on $1,000,000 = $100,000
Total = $125,000
This rule change may help in the most expensive areas of the country, like Toronto and Vancouver, but it may not impact many homebuyers in Alberta. We have yet to see as this change does not go into effect until December 15, 2024.
First-Time Buyers: RRSPs for a Down Payment Increase from $35,000 to $60,000
We covered this government change previously, but it bears repeating.
As of April 16, 2024, first-time homebuyers can withdraw up to $60,000 from their RRSP for a down payment.
Current Homeowners: Removal of Stress Test If Switching an Uninsured Mortgage
Starting November 21, if you are a current homeowner and want to make a switch to a different lender at renewal, the Office of the Superintendent of Financial Institutions (OSFI) will remove the Stress Test for uninsured mortgages.
This is a good change as the stress test requirement has not been required for insured switches since October of last year (2023).
Stress Test: A rate set higher than your mortgage contract rate to “test” your ability to pay back your mortgage if rates increase or your income drops. It’s meant to act as a safety so you don’t buy more than you can afford. The higher of a rate of 5.25% OR your actual contract rate plus 2.0% is used to qualify your mortgage loan amount.
But let’s look at who this rule applies to:
You are coming up for renewal of your mortgage term.
You have an uninsured mortgage.
You want to do a “straight switch” meaning you will keep the same amortization schedule and current loan amount.
Current Homeowners: Insured Refinances for Secondary Suites
This is one of those changes that looks amazing when you first read it. But the deeper you read, the less exciting it becomes.
Homeowners with an insured mortgage will soon be able to refinance their properties (up to 90% of the improved value) for building secondary suites. This is meant to boost the housing supply and maybe even earn you some rental income.
Reminder: Insured mortgages have less than 20% down and require mortgage default insurance with CMHC.
The property value is capped at $2M and the new mortgage can also be extended to 30 years.
This rule applies only to those who wish to build secondary suites AND who currently have an insured mortgage.
Current Homeowners: Increase in Capital Gains Tax When Selling Second Homes
As of June 25, the capital gains tax inclusion rate increases from 50% to 67% when selling second homes, vacation homes or tax investments.
This new rate only applies to capital gains above $250,000 PER OWNER on title. Any gains below that threshold are treated as before at 50% taxable.
Changes for Everyone in Alberta: Increase in Closing Costs
An increase in land transfer registration fees is among several changes introduced in Alberta's 2024 budget this spring.
Starting October 21, these fees will more than double—so if you're planning a home purchase, be prepared to see this reflected in your closing costs.
Mortgage Registration Fee:
Old: $50 + (principal value/5000) x 1.5
New: $50 + (principal value/5000) x 5
Mortgage Registration Fee: A charge by the provincial government to officially register a mortgage on a property. This ensures that the mortgage is legally documented and recognized as a lien against the property.
Transfer of Land Registration Fee:
Old: $50 + (property value/5000) x 2
New: $50 + (property value/5000) x 5
Land Registration Fee: A charge paid to the provincial government when ownership is officially transferred from buyer to seller. This is part of the legal process that ensures the buyer’s ownership is legally documented.
On a $500,000 property, with a $400,000 mortgage, what cost $420 in registration fees will now cost $1,000.
On a $1M property, with a $800,000 mortgage, what cost $740 in registration fees will now cost $1,900.
Even with these increases, Alberta's title transfer costs are still lower than most other provinces (even though we would have liked to keep that money in our pockets).
But Wait…There’s More
This is where we’re going to be a bit self-promoting and say why you should work with a mortgage broker versus going to your bank.
Starting in 2025, OSFI will cap the number of new uninsured mortgages banks can lend that exceed 4.5 times a borrower's gross income. This doesn’t include renewals or refinances.
Basically, it means that it’s become harder to qualify for a mortgage with a traditional lender, like your bank. As brokers, we have access to more than just the banks who specialize in only mortgage lending and do not have these caps (and with better terms!)
If we’re exhausted from writing all these rules down, you must be downright worn out. With all of these changes, there’s only one thing we want you to take away.
TALK TO A MORTGAGE BROKER!
Whether you're a first-time buyer, a seasoned homeowner, or just someone who enjoys keeping track of mortgage chaos (bless you), these updates are sure to impact the way you approach your next big purchase. Do it with someone who knows how to make these changes work for you.