Helping you get a headstart on homeownership!

Things are picking up. I have seen a significant increase in the number of purchases I am working on with clients. I’ve done an informal poll of some of my realtor and broker friends and we are all seeing the same increase in activity. This week I attended a learning session about the recent and upcoming changes to mortgage rules. This year it has felt like changes have been rolled out so often that its hard to stay on top of new policies. I thought it might be good to go over some of these changes as they will benefit many homeowners and homebuyers. Please note that this is a quick explanation and you may have questions or need clarification on some of what follows so please make sure you speak with your mortgage professional before moving forward with a purchase. In the order the changes were discussed in our session, here is a high-level overview for you. Effective August 1, 2024 first-time home buyers (FTHB) were able to purchase a newly built home using a thirty year amortization with a minimum down payment. Prior to this change the maximum amortization allowed for buyers with less than twenty percent down was twenty-five years. Key to note here is that the definition of a FTHB for purchasing homes is based on the CRA explanation of home buyers starting out or starting over; this includes buyers who have not owned their primary residence (nor lived in a home owned by their significant other) for the last four years. It also includes buyers who are recently separated or divorced. Also key to note is that only one of the borrowers must qualify as a FTHB for these rules to apply. For the purposes of Land Transfer Tax in BC, even if clients are considered FTHB under mortgage rules, they will still have to pay Land Transfer Tax if they have ever owned a home anywhere in the world. There is a small increase to the insurance premium (,2 per cent) if borrowers elect to use the thirty year amortization. Effective December 15, 2024 the price cap for insured mortgages will be increased from $1,000,000 to $1,500,000. Clients will be able to purchase a home up to this price with a minimum down payment of five per cent of the first $500,000 and ten per cent of any balance over that and up to $1,500,000. For the full $1,500,000 the minimum down payment will now be $125,000 as compared to the previous minimum down payment of $300,000. Trying to come up with the required twenty per cent down payment has been a barrier for many borrowers. The changes coming into effect December 15 also include the ability for repeat buyers to new builds with a thirty year amortization. As well, all FTHB will be eligible to qualify based on a thirty year amortization regardless of whether they are buying a newly built home or an existing home. For these guidelines to apply mortgage applications must be submitted AFTER December 15. The final change I’m going to touch on today rolls out effective January 15, 2025. Existing homeowners will be able to refinance their homes up to ninety per cent of the as-improved value of their home if they are pulling equity to create a secondary suite in their home using a thirty year amortization. What does “as-improved value” mean? With these applications we will need to order an appraisal which shows the current value of the home as well as the value of the home once the proposed work is completed. Current rules limit refinances to eighty per cent of the value of the home so I see this as a significant benefit for clients who are maybe newer to the housing market and can really use the income from a secondary suite. There are of course requirements for this program including: Either the borrower or close family member must live in one unit of the property You can add more than one unit to the home (up to a total of four) providing zoning allows for this Units must be completely self-contained Financing limit cannot exceed actual costs of the work Is your head spinning yet? Mine certainly is, trying to keep all of these changes straight. Many lenders are still determining their own policies as to how they choose to incorporate these rule changes into the mortgages they offer. It is important to speak with a mortgage professional to see how these changes may impact your borrowing power. As I mentioned we are already seeing a definite increase in purchase activity. It will very interesting to see if there is a flurry of activity following the implementation of the December 15 changes as well.

With the challenges in the mortgage world over the last few years I’ve had a few people ask if I am still enjoying my work. Fair question as there are many days I’ve felt like I’m fighting an uphill battle. The truth of the matter is that I absolutely love what I do. I had a call with a young couple last week that reminded me why I enjoy helping people with their mortgage financing. I helped this couple buy their first home about nine years ago, then helped them again at their renewal. They booked an appointment to chat about their future plans and asked how best to set themselves up for success. After they brought me up to date with the renovations they’ve done to their home and the upcoming expansion of their young family, we spent an hour exploring different options and talking about which route would likely be the best for them. In their case we have decided to wait until their renewal next summer before we make any changes. I started my mortgage career with one of the big banks. We were always busy and tightly scheduled so my meetings were all business. I didn’t have much opportunity to get to know my clients. My schedule did not allow for much social chit chat. Interestingly these conversations are what I enjoy most about my work. Being able to spend time with my clients building a plan and creating a strategy around next steps is very rewarding. I often have calls from clients who are almost apologetic because they aren’t ready to buy right away and are concerned about wasting my time. I love these calls. Having the time to dive in and make sure clients are well organized to buy at some point down the road means we can outline concrete steps to help them get set up for success. If you are starting to think about purchasing a home down the road I encourage you to connect with a mortgage professional sooner rather than later. Taking some time to learn about your options and the requirements for obtaining mortgage approval can help save much stress down the road and give you a clear goal to work towards.

Mortgage rule changes seem to be coming at us fast and furious. This isn’t surprising given we are in an election year. Several weeks ago I wrote about the change to the ceiling for the purchase price of insured homes and the extended amortization that will be available. On October 8, 2024 the government announced a new program that will come into effect January 15, 2025. The new program will enable clients who already own their homes to refinance up to 90 per cent of the value of the home to use the available equity to create a secondary suite. Current rules only allow refinances up to 80 per cent of the value of the home, regardless of the purpose of the refinance. The parameters of this new program, taken directly from the CMHC website ( Mortgage Insurance Rule Changes to Enable Homeowners to Add Secondary Suites - Canada.ca ) are as follows: This measure will apply to all borrowers seeking to access mortgage insurance in Canada to add more units (secondary suites). These borrowers must satisfy the following requirements: Already own their properties; The borrower or a close relative are occupying one of the current units; Intend to construct additional units; and, The additional unit(s) must not be used as a short-term rental. Refinancing: Insured refinancing will be allowed for the purpose of building additional unit(s). Legal units: The new units must be fully self-contained units (e.g., basement suites with separate entrances, laneway homes) and meet municipal zoning requirements. Number of units: Maximum of four dwelling units including the existing unit. Maximum Property Value Limit: The “as improved” value of the eligible residential property against which the loan is secured must be less than $2 million. Maximum Loan-to-Value limit: Up to 90 per cent of the property value, including the value added by the secondary suite(s), in combination with any other outstanding loans secured by the property. Maximum amortization: 30 years. Additional financing must not exceed the project costs. We are still waiting on clarification from lenders as to their specific guidelines around this program so I will provide more information as it becomes available. With respect to what this means in dollars and cents, using a home valued at $800,000 we will now be able to refinance up to $720,000 for the purpose of adding an additional legal suite. Under previous guidelines we would only be able to refinance up to $640,000 so in this example clients will be able to access $80,000 more of the equity in their home. It will be interesting to see what the uptake is for this program. One particular group of clients I see this benefitting is clients who have only been in their home a few years that have seen a moderate growth in their equity after only having put down the minimum down payment when they purchased their home. With carrying a higher mortgage and the increased cost of living overall these clients may really benefit from access to funds to add a secondary suite to their home.

When I am working with clients on their mortgage approvals there are several decisions they need to make. The questions differ a bit based on whether we are working on a purchase, a refinance, or a straight renewal. We talk about amortization, term, and the specific mortgage product. These questions differ a bit based on what we are doing and the clients’ specific situation. Amortization refers to the total length of time required to pay your mortgage in full. Term refers to the length of time you choose to lock into a specific rate. Some of the decisions can be scripted if you are purchasing with less than twenty per cent down and your mortgage requires default insurance. These rules have recently changed (again situation specific) but length of term is up to the individual client. Historically many people choose five year terms because lenders offer lower rates for this term. Over the last two years I’ve had far more people opt to pay a slightly higher interest rate and choose a three year term, gambling that rates will be lower then. Over the last year specifically as home prices have risen at the same time as the cost of living has escalated I’ve had different conversations with clients about the amortization they choose. With the recent announcement of changes coming to maximum amortizations for new builds and first time home buyers it will be interesting to see how these discussions change over the next few months. For clients who were working on refinances or purchases with over twenty per cent down we had the option of extending to a thirty year amortization. Some clients are resistant to stretching out the length of their mortgage and for solid reasons. Our parents’ generation was all about getting their mortgages paid off as soon as possible. This is obviously the choice that made the most sense and was more achievable for them and has been ingrained in many of us. Our current reality is that home prices and cost of living have skyrocketed while wages have not kept pace. I’ve heard the argument that our parents were not enjoying a life style that included $6 coffees every day. Fair enough. However, I have clients that live very frugally and are still struggling. Life happens. Divorce or separation happen. Devastating accidents or illness happen. Childcare bills escalate. Jobs are lost. Stuff happens. Particularly when I am working with clients that are consolidating or buying at a significantly higher price point we have a thorough discussion comparing the difference in monthly payments for (usually) a twenty-five amortization versus a thirty year amortization. Signing for a shorter amortization makes better sense for your long-term financial plan. However, if the higher payment causes you stress month after month and you end up in the same boat again a few years down the road the long term benefit is not there. Every lender offers several ways to make extra payments against the principal of your mortgage. Interest rates will likely be different every time you renew your mortgage. Your income and bills change over time. I will always be an advocate for paying your mortgage off sooner but many of my conversations with clients are pretty raw about the reality of making your payments every month. The positive news is that rates have been trending down over the last month which will help provide a bit of relief. The better news is that by making thoughtful decisions around your choices for amortization and term you may help reduce your overall stress level.

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