What Is the Insured Mortgage Limit Increase?
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Recent Canadian housing and mortgage market changes, including an increased insured mortgage limit and revisions to amortization limits for first-time homebuyers (FTHB) and those purchasing a newly built home, have sparked conversations among homebuyers, industry experts, and financial institutions. These developments make navigating the real estate market and understanding mortgage rates more complex. Let’s explore these changes, their implications for affordability, and what you need to know before purchasing your next home.
Key Takeaways
- The insured mortgage limit and amortization increase aims to improve affordability for first-time homebuyers.
- Increased amortization is also available to anyone purchasing a newly built home.
- Increased mortgage default limits are available for all new purchases.
What is the Insured Mortgage Limit Increase?
The insured mortgage limit refers to the maximum loan amount eligible for mortgage default insurance, which protects lenders if borrowers default on their loans. Historically, insured mortgages were capped at $1 million. However, due to rising home prices and economic pressures, the government has announced an increase in this limit to $1.5 million.
This move reflects an effort to enhance affordability for homebuyers, especially in high-cost markets like Toronto and Vancouver, where property values often exceed the previous threshold. By increasing the limit, more buyers will qualify for insured mortgages, benefiting from lower mortgage rates and down payment requirements.
How does the lower down payment benefit borrowers?
For example, if you had bought a home in Toronto or Vancouver last year for $1.4 million, you would have been required to put down 20%.
The downpayment works out to $1,400,000 x 0.20 and equals $280,000.
If the price of the same home has increased to $1,495,000 this year, you could purchase it with 5% down on the first $500,000 and 10% down on the remaining $995,000.
In this case, the downpayment is $124,000, which is $500,000 x 0.05 plus $995,000 x 0.10.
Even though the value of that same property increased by $95,000 since last year, with the new default insurance limit, you can purchase the property with half the downpayment, saving yourself $156,000 in downpayment if you had planned to put down 20% initially.
Insured vs Insurable vs Uninsured Mortgage Limits
In Canada, mortgages are categorized into three main types based on whether they qualify for mortgage default insurance:
Insured Mortgage
- This applies to high-ratio mortgages (down payment of less than 20%).
- Requires mandatory mortgage insurance provided by CMHC, Sagen, or Canada Guaranty.
- Typically, it has lower interest rates due to reduced risk for lenders.
Insurable Mortgage
- This applies to low-ratio mortgages (down payment of 20% or more).
- It doesn’t require insurance if the property is valued under $1 million at renewal or purchase.
- Lenders can choose to backend portfolio-insure the mortgage, resulting in better rates for the borrower.
Uninsured Mortgage
- This applies to properties exceeding the insurable limits or not meeting insurance criteria, such as home purchases or renewals for properties valued at $1 million or more with a 20% or more downpayment or any refinance transactions when not under the Canada Secondary Suite Lending Program (CSSLP).
- Usually, it comes with higher interest rates due to the increased risk for lenders.
| Type | Insured | Insurable | Uninsured |
|---|---|---|---|
| Downpayment | Less than 20% | 20% or more | 20% or more |
| Insurance Needed | Mandatory | Optional (lender discretion) | Not eligible for insurance |
| Interest Rates | Lowest interest rates | Slightly better rates than insured | Higher interest rates |
| Maximum Amortization | 25 years 30 years for first-time home buyers 30 years if purchasing a newly built home |
25 years | 30 years |
| Minimum Down payment | $125,000 5% on the first $500,000 10% on the next $1 million |
20% of purchase price or assessed value | 20% of purchase price or assessed value 50% beyond a specific limit (lender discretion)(the lender will have a sliding scale for properties located outside of GTA/GVA) |
| Maximum Property Value | Below $1,500,000 Up to $2,000,000 for insured refinances under the CSSLP. |
Below $1,000,000 | Any amount (based on lender discretion, risk assessment and lending policies for the subject property location) |
| Credit Score Required | 600+ depending on lending ratios (GDS/TDS) | 600+ depending on lending ratios (GDS/TDS) | 680+ depending on lending ratios (GDS/TDS) |
We’re curious…
Market Reactions and Trends
Industry players, including mortgage brokers and real estate professionals, have expressed mixed opinions about these changes. Some professionals view the increased insured mortgage limit as a positive step toward making homeownership more attainable in high-priced markets. However, others are concerned that income requirements still set the bar too high for most Canadians to purchase a home worth over $1 million with the minimum downpayment.
Navigating the New Mortgage Environment
Recent changes in insured mortgage limits may challenge borrowers as home prices continue to rise over the long term. Here are some tips for prospective homebuyers:
- Get Pre-Approved: With changing rules, getting pre-approved by a mortgage professional can help you understand your borrowing limit.
- Consider a Fixed Rate: Locking in a fixed rate may provide greater financial stability in an unpredictable rate environment, especially for a first-time homebuyer (FTHB) with multiple new financial obligations.
- Work with a Broker: Mortgage brokers can offer personalized advice and help you find the best mortgage rates in a competitive market. Or work with a direct-to-consumer lender such as nesto, where all our mortgage experts are professionally licensed mortgage brokers or agents in their province.
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Frequently Asked Questions (FAQ) on the Insured Mortgage Limit Increase
How does the increased insured mortgage limit affect down payments?
With the increase in the limit, buyers purchasing homes up to $1.5 million can still benefit from lower down payment requirements, making it easier to enter the market. On a typical home just below $1.5 million, a borrower can save half the downpayment with the increased mortgage limit.
How does the increased insured mortgage limit affect first-time homebuyers?
The insured mortgage limit increase benefits first-time homebuyers by allowing them to purchase higher-valued homes while still qualifying for mortgage insurance with up to a 30-year amortization. This means they can make a down payment of less than 20% on properties valued up to $1.5 million and carry the mortgage for 30 years, potentially making homeownership more accessible in high-cost areas.
Will the increased insured mortgage limit apply to new home purchases and mortgage refinancing?
The insured mortgage limit increase primarily applies to new home purchases requiring high-ratio mortgage default insurance. It does not typically impact refinancing, as refinanced mortgages generally fall under the uninsured loans category and require a minimum of 20% equity. However, insured refinances under the Canada Secondary Suite Loan Program (CSSLP) will be allowed on property valued at up to $2 million.
Final Thoughts
The increased insured mortgage limit, paired with the longer amortizations available to first-time homebuyers (FTHB) and those purchasing newly built homes, marks a significant shift in Canada’s housing market. Understanding these changes is crucial for homebuyers to make smart decisions for their unique financial circumstances.
If you have questions or need customized advice for your unique mortgage needs, contact nesto mortgage experts today to find your best mortgage strategy.
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