December had some big news that could potentially affect our market: the increase of the uninsured mortage cap and a BOC rate drop of 0.5% Here’s what you need to know:
Mortgage Cap Increases to $1.5M | In Canada, if you’re buying a home and your down payment is less than 20% of the purchase price, you’ll need mortgage default insurance. This insurance is offered by the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty, and your lender will handle the application for you.
Up until now, if a property cost $1 million or more, it wasn’t eligible for default insurance either. But starting December 15, 2024, the federal government is raising the cap from $1 million to $1.5 million—the first increase since 2012. This update means more homebuyers will able to get a mortgage with less than 20% down on a higher priced homes, in effect making them potentially more accessible to a larger buyer pool.
But there are restrictions on the types of properties covered. For example, properties used as short-term rentals, hotel units, or mixed-use spaces aren’t eligible for mortgage default insurance and therefore will still require larger down payments.
If you’re considering making a purchase with less than 20% down payment, consult your lender to confirm whether your property is eligible for this new change.
BOC Makes “Oversized Rate Cut” | The Bank of Canada (BoC) ended 2024 with a gift to borrowers by cutting its overnight lending rate by 50 basis points on December 11, bringing it down from 3.75% to 3.25%. This rate directly influences lenders’ prime rates and variable borrowing products. The cumulative drop now totals 175 basis points from its high of 5%, where it had held steady from July 2023 to June 2024.
This is the BoC’s second consecutive “oversized” cut, reflecting a cooling economy and inflation finally hitting the 2% target. The cut followed a lower-than-expected GDP growth rate of 1% in Q3 and a rise in unemployment to 6.8% in November—the highest since 2017 (excluding the pandemic). The Bank is watching risk factors like potential U.S. trade tensions and will assess future rate changes “one announcement at a time.”
How quickly and to what extent this cut will affect our coastal real estate market remains to be seen but many buyers site factors beyond simply the current interest rate as reasons for continuing to sit on the sidelines.