Experts warn changes to mortgage rules could drive up home prices

Some mortgage professionals are sounding the alarm over the federal government’s latest mortgage rule changes – and the costs that come with them – for first-time homebuyers.

On Monday, Finance Minister Chrystia Freeland announced a higher cap on insured high-ratio mortgages from $1 million up to $1.5 million.

First-time buyers will also be eligible for 30-year amortization mortgages for any type of home, up from the previous 25-year limit.

“This allows people that are in those areas, that are looking to buy over $1 million, a little bit more leverage,” Mortgage Agent Amanda Lawson told CTV News.

According to the government, the move will make it easier for Canadians wanting to get into home ownership.

Victor Tran, a mortgage and real estate expert with RATESDOTCA, said it might not be that easy.

“This kind of opens up a bigger segment of the market for some home purchasers, but of course, it’s going to come at cost,” he said.

Tran warns the changes could lead to higher insurance premiums and steeper monthly payments on mortgages.

Lawson said lower down payments could make pre-approval too big of a hurdle for buyers with larger mortgages.

“You need to make a lot of money to be able to buy a $1.5 million property with less than 20 per cent down,” she said.

The example below breaks down the mortgage for a $1.5 million home with 10 per cent down, according to RATESDOTCA Group LTD.

Impact on home prices

Tran said there are higher-income individuals “sitting on the sidelines” before getting into the market.

“This new rule will allow them to enter the market earlier,” he explained.

Tran warns more high-income buyers run the risk of driving up home prices and pushing ownership further out of reach for those who don’t make as much.

The new mortgage rules come into effect on Dec. 15.