The Canadian real estate market has just received a much-needed boost. With the new mortgage rules coming into effect on December 15th, 2024, borrowers are seeing a dramatic improvement in affordability. Monthly payments on mortgages have dropped by as much as 25% compared to last year. This transformation is setting the stage for a resurgence in homebuyers and investors alike, making it one of the most optimistic shifts in the market in recent years.
A Game-Changer for Homebuyers
Let’s look at the numbers for a buyer aiming for a purchase price of $750,000 with the minimum $50,000 down payment.
Taking out a high-ratio-insured mortgage of $700,000 at last year’s 6.5% interest rates for a 5-year fixed with a 25-year amortization, they would have faced a monthly payment of $4,877. Under the new rules, and with interest rates now hovering around 4.5% and the amortization extended to 30 years, that monthly payment drops to just $3,657. That’s a reduction of $1,220 per month, or 25%.
For prospective buyers who felt sidelined by high payments and restrictive lending rules, this is a lifeline. Moreover, the annual income required to qualify for such a mortgage has also fallen significantly. From $164,000 last year to $126,000 today, $38,000 less is a 23% reduction. These changes open the door for thousands of Canadians who were previously priced out of the market. The dream of homeownership is once again within reach.
More Buyers, More Momentum
This surge in affordability is expected to bring a wave of buyers into the market, especially first-time purchasers. With lower payments and more accessible qualification requirements, many families and young professionals who’ve been sitting on the sidelines are now ready to make their move. This increased activity won’t just benefit buyers; it will invigorate the broader real estate market, creating opportunities for sellers and stimulating local economies.
A New Era for Investors
It’s not just first-time buyers who stand to benefit – investors are also finding renewed interest in the market. Over the past two years, high interest rates significantly increased monthly carrying costs, making cash flow a challenge and sidelining many investors. Now, with rates down and monthly payments reduced, the math finally makes more sense, and opportunities are reappearing.
While positive cash flow may not yet be fully back for many properties, that isn’t necessarily a dealbreaker for investors. Some are comfortable taking on neutral or even slightly negative cash flow if the broader market conditions support their long-term goals. We’ve been talking with many investors recently and what’s changed is that, with the expected surge in activity from first-time buyers driving demand, investors are expecting property values to rise. This gives investors the confidence to acquire properties, even if cash flow is tight in the short term.
The logic is clear: as prices climb, the potential for equity growth offsets the challenges of cash flow. This dynamic encourages investors to act now rather than wait, especially in a market where demand is expected to increase across the board.
Why This Matters
The significance of these changes goes beyond dollars and cents. It’s about restoring confidence in the Canadian real estate market.
For buyers: This is a moment of hope, as improved affordability opens the door to homeownership.
For sellers: Increased demand from first-time buyers creates opportunities to sell at favourable prices and confidently move to their next home.
For investors: A chance to reimagine their strategies, explore new opportunities, and grow their portfolios.
For the market overall: A shift that signals a return to stability and optimism.
Seize the Moment
If you’ve been considering buying a home or investing in real estate, now is the time to act. With the December 15th changes reshaping affordability, the window of opportunity is wide open in 2025.
Have questions about how the new rules impact you? Let’s connect. Whether you’re a first-time buyer or a seasoned investor, the Kanga Mortgage team can help you navigate the changes and find the right solution for your needs.