Ottawa’s Mortgage Rules: One Year Later, Financial Tips, First Time Home Owner, General Interest, Housing Costs, Mortgage Down Payment, Real Estate Advice, Residential Mortgages

It was roughly one year ago that Finance Minister Flaherty announced his fourth round of mortgage restrictions in as many years. The reason for these changes was simple: cool down an out-of-control housing market. By tightening lending rules, Flaherty hoped to lower the risk to taxpayers and curb excessive rates of household debt. 

These rules included:

  • Limiting the maximum gross debt service (GDS) and total debt service (TDS) to 39 percent and 44 percent.
  • Banning mortgage insurance on properties over $1 million
  • Eliminating prime mortgages for those with less than 20 percent equity and
    • a 30-year amortization (the maximum is now 25 years)
    • a refinance of 85 percent loan to value ratio (the maximum is now 80 percent)

The changes, which went into effect on July 9, 2012, have been praised for preventing what many thought to be an unavoidable bubble. Even so, many mortgage brokers and industry experts are still worried about the long-term effect on home buyers. A harder-than-expected landing could still take place, now that mortgage interest rates are back on the rise.

What’s more, Canada’s first-time homebuyers, traditionally one of the largest buying demographics in the country, are finding it increasingly difficult to enter the market thanks to last year’s changes.

According to a poll from the Bank of Montreal, one in five first-time buyers blame last year’s mortgage rule tightening for preventing their home purchase. Which isn’t entirely a bad thing; these rules were instituted in order to prevent high ratio borrowers from getting in to deep, after all.

But what about those sky-high property price tags?

Turns out those are still on the rise, thanks to ultra-low sub-prime mortgage rates. As more and more first time buyers shied away from buying, banks did everything they could to turn the tides and entice buyers back. Earlier in the year, rates dipped below 2 percent as the government’s five-year bond yield fell to 1.15 percent.

Other Stats from the BMO Study

Here are a few more stats from BMO’s recent report. You can view the full report here


  • First-time buyers in Ontario are the most likely (76 percent) to say that the mortgage rule changes will not affect their buying timeline. Only 11 percent of respondents said the rules would cause them to wait longer.
  • British Columbians are the most likely (33 percent) to wait longer to buy their first home.
  • First-time buyers in the prairies and Quebec are the most likely (19 percent) to say they will buy sooner.

Bridging the Gap

Where there’s a will, there’s a way, or at least that appears to be the approach for many first-time buyers. Instead of throwing in the towel and resigning themselves to the rental life, many young Canadians are relying on alternative funding sources to get there start in the real estate world. More boomer parents are helping foot the bill for down payments, while other buyers are looking for lower price tags in smaller towns. Others are pooling their resources; purchasing property with friends or relying on an investor with a proven history of success.

Even so, Canada Mortgage and Housing Corp. is expecting housing sales to slow even more this year. This is thanks in part to the recent increase in mortgage rates, brought on by the new 1.8 percent five-year Canada bond yield.

Curious as to whether or not now is the right time for you to buy? Contact a mortgage broker at today for more information on current mortgage rates and financing opportunities.

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