Mortgage Rule Changes
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.
