Federal Government Increases CMHC Mortgage Cap to $1.5M and Expands 30-Year Amortizations: A Boost for Calgary’s Housing Market

In response to Canada’s ongoing housing affordability crisis, the federal government has announced significant changes to the mortgage system. These reforms aim to make homeownership more accessible, particularly for first-time buyers who have been struggling to break into the market due to rising housing prices. Among the most notable changes are an increase in the CMHC-insured mortgage cap from $1 million to $1.5 million and the extension of 30-year amortization periods to all first-time buyers. These changes, which come into effect on December 15, 2024, are expected to have a notable impact on housing markets across the country, including in Calgary.

Key Policy Changes

1. CMHC Mortgage Cap Increased to $1.5 Million

One of the major changes is the increase in the CMHC-insured mortgage limit from $1 million to $1.5 million. This allows buyers to qualify for a mortgage with less than a 20% down payment on homes priced up to $1.5 million, making it easier for buyers to access higher-priced properties.

The previous $1 million cap was a significant hurdle for buyers in high-cost urban areas like Toronto, Vancouver, and increasingly Calgary, where home prices have outpaced wage growth. By raising the cap, the federal government aims to provide more flexibility for buyers in these markets, where securing a mortgage with CMHC insurance was previously challenging for higher-priced homes.

2. 30-Year Amortizations for First-Time Buyers

In addition to the increase in the mortgage cap, the government has also extended 30-year amortization periods to all first-time homebuyers. Initially, this option was available only for new builds, but now it will apply across the board. This change allows buyers to spread their mortgage payments over a longer period, which reduces monthly payments and makes homeownership more affordable in the short term.

Deputy Prime Minister and Finance Minister Chrystia Freeland emphasized the government’s commitment to unlocking homeownership for younger Canadians. By offering longer amortization periods, the government aims to ease the financial burden on first-time buyers, giving them more breathing room in managing their monthly expenses.

Benefits of the New Changes

1. Improved Access to Higher-Priced Homes

One of the immediate benefits of these changes is that they make higher-priced homes more accessible to first-time buyers. In markets like Calgary, where the housing market has seen some stagnation in the $1 million to $3.5 million price range, the increased CMHC mortgage cap could stimulate demand. Buyers who may have previously been priced out of these homes can now consider properties in this range, thanks to the increased access to insured mortgages.

In recent years, the higher-end of Calgary’s housing market has lagged behind the growth seen in lower-end properties. These policy changes could help bridge that gap by attracting more buyers to higher-end properties, increasing demand, and potentially driving price appreciation in this sector.

2. Lower Monthly Payments

The extension of 30-year amortization periods for first-time buyers offers another significant benefit: lower monthly payments. For many young professionals and families, monthly mortgage payments represent a significant portion of their budget. By spreading these payments over a longer period, buyers can reduce their monthly expenses, making homeownership more manageable in the short term. This could be particularly helpful in cities like Calgary, where buyers may be balancing higher living costs with mortgage payments.

Drawbacks and Potential Risks

1. Higher Interest Costs Over Time

While the 30-year amortization period reduces monthly payments, it does come with a downside: buyers will pay more in interest over the life of the mortgage. A longer amortization period means that interest compounds for a longer time, resulting in higher overall costs. For buyers who plan to stay in their homes long-term, this could reduce the financial benefits of homeownership.

2. Rising Home Prices

As more buyers enter the market, particularly in the higher price ranges, there is a risk that home prices will rise even further. While the changes are designed to improve affordability, increased demand could push prices up, making it harder for future buyers to enter the market. This could be especially pronounced in hot markets like Vancouver, Toronto, and Calgary, where supply is already limited.

3. Potential for Over-Borrowing

With a higher mortgage cap, some buyers may be tempted to take on more debt than they can realistically manage. Stretching their finances to meet the new $1.5 million limit could leave buyers vulnerable if interest rates rise or if their financial situation changes. It’s important for buyers to be mindful of their long-term financial health and not overextend themselves just because larger mortgages are now available.

Impact on Calgary’s Housing Market

In Calgary, the new policies could have a significant impact, particularly on homes priced between $1 million and $3.5 million. In recent years, this segment of the market has seen slower growth compared to lower-priced homes. The increased mortgage cap could help boost demand in this range, encouraging more transactions and driving up prices. This could provide a much-needed boost to Calgary’s housing market, which has experienced fluctuations due to economic conditions tied to the energy sector.

With the ability to secure a CMHC-insured mortgage for homes up to $1.5 million, more buyers may enter the market for higher-end properties, which could stimulate price growth in previously stagnant areas. Builders and developers may also see this as an opportunity to focus on constructing homes in this price range, knowing that there is likely to be more demand.

Conclusion

The federal government’s decision to raise the CMHC mortgage cap to $1.5 million and expand 30-year amortizations for first-time buyers marks a significant shift in Canada’s housing policy. These changes are expected to make homeownership more accessible, particularly in high-cost markets like Calgary. By increasing access to higher-priced homes and reducing monthly mortgage payments, the new policies aim to ease the financial burden on younger Canadians.

However, there are risks, including higher long-term interest costs and the potential for rising home prices. In Calgary, the impact could be particularly notable in the $1 million to $3.5 million price range, where demand has lagged in recent years. With the right balance of supply and demand, these changes could help revitalize this segment of the market and provide new opportunities for both buyers and sellers.

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_{Disclaimer: The information provided in this article is based on current market research and publicly available data. While every effort has been made to ensure the accuracy of this information, market conditions can change rapidly, and readers are encouraged to conduct their own research or consult with a professional for specific advice. Information deemed reliable, but not guaranteed.}