Effective December 15, 2024 there are some MAJOR changes to insured mortgages. One big change is that purchases of up to $1.5M can now be insured mortgages which means your down payment can be less than 20%. Another change is bringing back 30 year amortizations on insured mortgages. Buyers who are considered first-time home buyers or buyers of newly built homes can now get a mortgage with a 30 year amortization. Lastly, we discuss the latest inflation numbers with CPI coming in at 2.0% for August which means there could be some downward pressure on variable rates. Have a listen to see what we think!
[00:00:00] So today, here we are on September 17, 2024. And there was a big announcement yesterday, Mindy.
[00:00:10] You've landed on the Mortgage Life podcast where we strive to bring you mortgage related info
[00:00:17] that's easy to understand. We have conversations with market experts to bring you timely updates
[00:00:24] because there's one certainty in this industry, things change. I'm Mindy Bodwin and I'm Pete Salamosi.
[00:00:33] Welcome to the Mortgage Life podcast. It was a big and bold announcement as we're reading in the media
[00:00:46] coverage. Yes. So yeah, I've been a mortgage broker for 12 years and the whole time the
[00:00:54] threshold for insured mortgages was up to $1 million. So if you purchased up to $999,999.99,
[00:01:03] you could get an insured mortgage which meant that you didn't have to come up with a 20% down payment.
[00:01:12] Obviously, over the past, especially the past few years, there's been an exponential price
[00:01:18] growth in Canada. So that $1 million threshold was, it was a pretty awkward like, okay, well,
[00:01:25] you can afford this or you can save up an extra $100,000 and afford this. So anyways, good news.
[00:01:31] The threshold has been increased to $1.5 million now. So
[00:01:37] Very interesting. So I think I want to back it up to the actual down payment. So like you said
[00:01:43] $999.99, your down payment would be $75,000 because it's 5% of the first 500, 10% of the next.
[00:01:54] So $75,000 on that amount. But if you go to a million, then it's $200,000. So it's quite a big
[00:02:00] jump. So this gives that relief for homes that are just above that threshold and then,
[00:02:05] like you say, go up to $1.5 million. So we don't know exactly what the amount of the
[00:02:12] down payment is above a million from a million to one and a half. It may still be the 10%.
[00:02:17] That's to come. But we do know that you can do an insured mortgage up to $1.5 million now. So that's
[00:02:25] cool. Yeah, it will definitely open the doors for more buyers. That $1 million threshold was a
[00:02:34] difficult margin for sure for a lot of shoppers over the past couple of years. So
[00:02:38] well, especially in markets like Victoria, Vancouver, and even in the Okanagan, there's a lot of homes
[00:02:45] that are starting to hit that $1 million mark because I think the actually the benchmark price
[00:02:51] in Kelowna has exceeded $1 million for a detached home. So even that as kind of an outlying area,
[00:02:58] that's a very high number. Like it's not a number that is far out there. It's actually
[00:03:05] the kind of middle home. Yeah, so I'm glad it's about time, I would actually say. So this is a
[00:03:14] real change that I feel like makes a lot of sense for sure. Well, and the important thing to note
[00:03:20] is that the last time that number was changed was like Mindy said when she started. So 2012
[00:03:24] was actually the last time that number was changed. So it has been a while and prices
[00:03:29] of properties and values of properties have certainly increased in that 12 years.
[00:03:35] So yeah, so that's good news story number one. We actually have two more good news stories today.
[00:03:40] Good news story number two is the 30 year amortization. So Pete if you want to explain,
[00:03:46] because this one isn't as broadly sweeping as the change in the CMHC insurance level. So
[00:03:54] it used to be that any insured mortgage would only max out at an amortization of 25 years. So they
[00:04:03] would essentially look at how long it would take to pay it off at the 25 year mark. That would be
[00:04:08] the determining factor in figuring out what your monthly payment would be. Now there's two
[00:04:13] categories that will allow a person to get to a 30 year amortization and that 30 year will
[00:04:19] drop the monthly payment because we're essentially amortizing or paying it off over a longer
[00:04:24] period of time. So the two categories are if you're a first time home buyer and if you're buying a new
[00:04:33] build. So a newly constructed home. So those two categories, yeah. So this is an important
[00:04:40] distinction because when this rule was first announced yesterday I actually missed this.
[00:04:45] So the 30 year am for insured mortgages doesn't apply to all buyers. It's just
[00:04:52] buyers that are first time, first time homeowners or if you're buying a new build. So it doesn't
[00:04:59] matter if you're first time home buyer buying your 10th house. If it's a new build,
[00:05:02] you can extend your amortization out. And so how is this helpful? Again, it helps with mortgage
[00:05:08] qualification. Prior to this rule change, if you had your 20% down payment then we could
[00:05:16] extend the amortization to 30 years, which helped quite a few buyers with qualifying for that mortgage.
[00:05:23] But when we were looking at the insured mortgages, we had to scale it back to 25. So then
[00:05:29] adding also adding the CMHC insurance premium onto that mortgage made those mortgages harder to
[00:05:35] qualify for. So this helps relieve that for again first time home buyers or buyers of new builds.
[00:05:41] Right. And there was another point in there that I really wanted to note, which is that
[00:05:49] pause for dramatic effect.
[00:05:54] As you're talking, I lost it.
[00:05:59] I don't know. Well, one thing that I just thought of while you were thinking of that is
[00:06:03] just to be mindful that these changes don't actually come into effect until December 15th.
[00:06:09] That's what I wanted to say. Okay. It doesn't happen right away. We have to wait until December
[00:06:15] 15th and that not all the details of this program are fully flushed out. So we don't know exactly
[00:06:24] how this will all work, but we do know that it'll be December 15th. Thank you, Mindy for that.
[00:06:29] And that some of the details are coming. So please stay tuned because we will update
[00:06:34] you when they come through. Yes. So two good news story and then Pete has a third report on,
[00:06:40] which is very exciting and it's something that well I've been waiting for for a few years now.
[00:06:45] It's crazy. We can go for months and not have good news stories and mortgages and then all
[00:06:50] of a sudden we've got two in two days. The CPI number, so the inflation number came out yesterday
[00:06:55] and it was from the Bank of Canada and they indicated that the inflation, the CPI number
[00:07:01] had dropped from 2.5% in July to 2% in August. That's a big yay. And the reason it's a big yay
[00:07:10] is because the Bank of Canada, their monetary policy, so when they move rates up and down,
[00:07:15] that was all in order to get the CPI number between two and 3%. And now we're at the lowest
[00:07:23] bound of that range. So they've accomplished what they want to accomplish. So Mindy,
[00:07:30] what is the effect of all this? Well, I'm just going to pull out my crystal ball here.
[00:07:35] Yes. And he knows. Yeah. I mean, what this means is like Pete said that what they've been doing with
[00:07:42] the interest rate increases and now the sort of little adjustments downwards is that it's working.
[00:07:49] So there are some industry experts thinking that in the next interest rate announcement,
[00:07:54] which is October 23rd, the Bank of Canada might actually do a larger rate decrease. So they've
[00:08:00] been doing 0.25. They may actually do a 0.5, which is kind of a nice pre-Christmas present.
[00:08:08] Yeah. Yeah. So and the other interesting part that I like about this 2% indicator
[00:08:14] is that it also includes housing costs. So it seems like a catch 22 that as interest rates
[00:08:22] went up, housing got more expensive and the CPI went up. But now it's come down a little bit,
[00:08:31] but not like all the... It really hasn't come down a lot. It's 1.5, right? But it's not dramatically
[00:08:40] affecting the housing. Like the cost of the housing has actually been coming down. I mean,
[00:08:45] the market's been slowing anyways. It's good news. Yeah. It is good news. And it's one of
[00:08:52] those weird things when if you think about CPI and think about inflation, the price of bananas went up
[00:08:58] a lot. Maybe 15%, 20% and that price kind of got built in. So the weird part is, and this is how
[00:09:06] you think of CPI, the price of bananas is not still continuing to elevate. It's kind of like
[00:09:11] plateaued. And that's like the same with gasoline and the same with bread and the same with beer.
[00:09:16] So like those things, they went up a lot, but now they've all kind of settled. And CPI is always a
[00:09:22] number that looks at year over year. So September to September or July to July. And so because
[00:09:27] those numbers have settled, we're really... The Bank of Canada has accomplished its thing. It's
[00:09:32] caused the prices to normalize. And so now that they're normalized,
[00:09:37] hopefully they'll start bringing things down. The big gift that we really
[00:09:41] were hoping to have was a few rate drops this year. And we've already had three
[00:09:46] quarter point rate drops. Now there's an opportunity and a possibility that we might get
[00:09:51] two additional rate drops, and they might actually be larger than a quarter point. So
[00:09:55] if you've got a variable rate mortgage, HELOC, any sort of line of credit that actually works
[00:10:02] off of prime, you might be in for some good times ahead. Yeah, some price relief. Some price
[00:10:11] relief. A little bit less stress watching the monthly cash flow, I would say. Absolutely. So
[00:10:17] stay tuned. Listen to us. We're going to have more updates as things go on. And if you've got a
[00:10:22] mortgage coming up, now is a great time to discuss the opportunity of a variable rate or
[00:10:28] adjustable rate mortgage versus a fixed rate. Come chat with us. Have a great day. This is the
[00:10:34] mortgage life. We look forward to continuing the conversation. So come back and listen.