Mortgage Types Explained

1. Conventional Mortgage

• A conventional mortgage is straightforward:
• The buyer puts down at least 20% of the home's purchase price.
• No mortgage insurance is required.
• The Amortization period is 25 years and up to 30 for a firs time homebuyer. 

2. Insured Mortgage

The buyer puts down less than 20%.

Mortgage insurance is mandatory (typically provided by CMHC or private insurers).

Applies only to homes below $1.5 million.

Why does this matter?
Because lenders take on less risk with insured mortgages, they often offer better interest rates compared to conventional mortgages.

Key Mortgage Rule Changes in 2024

1. Insured Mortgage Threshold Increased from $1M to $1.5M. 

Buyers purchasing homes under $1.5 million will now qualify for insured or insurable mortgage rates.

This could mean lower interest rates and more purchasing power for buyers in markets with higher-priced homes, like Montreal's West Island.

2. First-Time Buyers Can Choose a 30-Year Amortization

• Previously, all insured mortgages had a 25-year max amortization.
• First-time buyers can now extend this to 30 years, lowering their monthly payments.

Example:

• A $600,000 mortgage at a 5% interest rate
• 25-year amortization = ~$3,500/month
• 30-year amortization = ~$3,200/month

That's a $300/month difference, making homeownership more accessible. But remember, spreading payments over a longer period means paying more in total interest.

Should You Choose a 30-Year Amortization?

It depends. A longer amortization:
 ✅ Lowers monthly payments, making it easier to qualify.
 ✅ Helps first-time buyers get into the market sooner.
 ❌ Increases the total interest paid over time.
 ❌ May keep you in debt longer.

A smart strategy?

1. Start with a 30-year amortization to get in the market.
2. Make extra payments when possible.
3. Refinance at 25 years when your financial situation improves.

Other Programs for First-Time Homebuyers

First Home Savings Account (FHSA) – A Must-Know Program

• Contribute up to $8,000 per year (max $40,000 total).
• Contributions lower taxable income, like an RRSP.
• Withdrawals are tax-free, like a TFSA, when used for a down payment.
• Pro tip: You don't need to keep money in the account for long—even an overnight deposit counts for tax savings.

Home Buyers' Plan (HBP)

• Allows first-time buyers to withdraw up to $35,000 from their RRSP for a down payment.
• Must be repaid over 15 years, or it's taxed as income.

GST/HST Rebate for New Homes

• If buying a new-build home, you may qualify for a rebate on federal and provincial taxes.

These programs can be combined, helping buyers reduce upfront costs and increase affordability.

Fixed vs. Variable: Which Mortgage Is Best in 2024?

Fixed-Rate Mortgage

✅ Locks in a set interest rate.
 ✅ Best for stability—payments never change.
 ❌ Higher rates than variable (for now).
 ❌ Expensive to break if you need to sell or refinance.

Variable-Rate Mortgage

✅ Lower rates expected in 2025 and beyond.
 ✅ Easier and cheaper to break the mortgage.
 ❌ Payments fluctuate if rates change.
 ❌ Not ideal if you can't handle risk.

What's the best choice?
 If you value security, go fixed.
 If you can handle some risk, variable could save you thousands as rates drop.

How Lenders Evaluate Mortgage Applications

Banks and lenders look at:

• Credit score (higher scores = better rates).
• Income stability (2+ years in the same field helps).
• Debt levels (credit cards, car loans, lines of credit).
• Total Debt Service (TDS) Ratio – Mortgage + all other debts can't exceed 44% of gross income.
• Stress test – You must qualify at a rate 2% higher than your actual mortgage rate.

Pro tip: If you're self-employed, a mortgage broker can help you find lenders who work with flexible income.

Bank Mortgage Specialist vs. Mortgage Broker – What's the Difference?

Bank Mortgage Specialist

• Only offers one lender's products.
• Works for the bank, not for you.
• May have less flexibility in approvals.

Mortgage Broker

• Shops multiple lenders for the best rate and terms.
• Works for you, not a specific lender.
• Better for unique situations (self-employed, lower credit, new buyers).

Which should you choose?
 If you want more choices and often better rates, a mortgage broker is usually the way to go.

How Will These Changes Impact Montreal Home Prices?

With more buyers able to qualify for insured mortgage rates, demand in the $750K–$1.5M range will increase.

This could:

• Push prices slightly higher in that range.
• Make competition tougher for first-time buyers.
• Keep rental demand strong, as not everyone will qualify.

Ultimately, without increasing housing supply, these rule changes won't make homes more affordable in the long run.

Final Thoughts: What Should You Do Now?

✔️ If you're buying soon:

• Consider locking in a 30-year amortization if cash flow is tight.
• Look at insurable mortgage options to access lower rates.
• Open an FHSA today to maximize tax savings.

✔️ If you're renewing or refinancing:

• Reassess fixed vs. variable rates based on your situation.
• Talk to a mortgage broker to shop for the best deal.
• Plan ahead—rate cuts are expected, but timing matters.

✔️ If you're waiting to buy:

• Build your down payment using FHSA and RRSPs.
• Keep an eye on rate changes in 2024–2025.
• Work on improving your credit score for better mortgage options.

Need mortgage advice? Contact us at Broady Windsor Group.