Mortgage Changes in Ontario: Interest Rates, Price Caps, Amortizations, and Stress Tests
If you’re in the market for a home in Ontario, you’ve probably noticed that things are constantly shifting when it comes to mortgage rules and regulations. The federal government has implemented new regulations to make buying and owning a home more accessible and affordable. In this article, we’ll break down the key mortgage changes and explain how they impact your decisions.
Interest Rate Cuts: A Chance to Save on Your Payments
Good news for homebuyers: The Bank of Canada cut its key interest rate to 4.25% on September 4, 2023, marking its third consecutive rate cut. This easing of monetary policy is designed to stimulate the economy, and for homebuyers, it means lower borrowing costs.
For example, you’re purchasing a $500,000 home with a 20% down payment, which is $100,000. Your mortgage amount would be $400,000. With a 0.25% interest rate decrease, your monthly mortgage payment would decrease by approximately $30.
Lower rates also mean you may qualify for a larger mortgage, as lenders calculate your borrowing capacity based on your monthly obligations. However, while lower interest rates can ease the financial burden, it’s important to note that home prices in Ontario, especially in cities like Toronto, remain high. While a rate cut helps, it’s still crucial to stay within your budget.
Price Cap for Insured Mortgages: Understanding the New Tiered Structure
Next up, let’s talk about insured mortgages—those with less than a 20% down payment. Recent government mortgage changes have introduced a tiered insurance structure that raises the price cap for insured mortgages, giving homebuyers a bit more flexibility. But what does this mean for you?
Previously, if you were looking to buy a home over $1 million, you wouldn’t have been able to get an insured mortgage. Now, the price cap has been bumped up to $1.25 million for insured mortgages, but with stricter down payment requirements.
Here’s the breakdown:
- Homes between $1 million and $1.25 million: You can still get an insured mortgage, but you’ll need a bigger down payment than before.
- Homes over $1.25 million: You’ll need an even larger down payment, and your mortgage insurance premium will go up.
This change is a big deal if you’re shopping in high-priced markets like Toronto, where that old $1 million cap was a serious roadblock. Now, buyers looking at homes in the $1 million to $1.25 million range have more options, but you’ll need to be prepared for a larger upfront cost.
30-Year Amortizations: Lower Payments, Higher Interest Costs
A positive development for homebuyers is the return of 30-year amortizations for uninsured mortgages (those with a down payment of 20% or more). Most insured mortgages are still limited to a 25-year amortization.
Let’s break it down: If you’ve got a $400,000 mortgage at 4% interest rate:
- With a 25-year amortization period, your monthly mortgage payment would be approximately $2,325.
- With a 30-year amortization period, your monthly mortgage payment would decrease to approximately $2,135.
But there’s a catch—while you’ll have lower monthly payments, you’ll end up paying more in interest over the life of the mortgage. So, while a 30-year amortization can give you some breathing room in the short term, make sure you’re comfortable with the long-term cost.
Want to explore how different amortization periods affect your payments? Try our Monthly Payment Calculator to see what works best for you!
Mortgage Stress Test: New Rules for Switching Lenders
Great news for homeowners with uninsured mortgages (20% or more down payment): You no longer need to pass the stress test when switching lenders. Previously, even if you were looking for a better mortgage interest rate at the end of your term, you had to requalify under the stress test with your new lender.
Now, as long as you’ve been making your payments, you can switch lenders without going through the stress test again, giving you more flexibility to find better mortgage deals. However, the stress test still applies if you’re applying for a new mortgage or refinancing.
Whether you’re looking to secure the best mortgage rate or need more info on how these mortgage changes affect you, our team is ready to guide you. Schedule a call with one of our experienced agents today by visiting our application page—we’re here to make your mortgage process as smooth as possible!
