Canada relaxes some mortgage insurance rules to tackle housing crisis

Canadian Finance Minister Chrystia Freeland announced changes to mortgage rules on Monday as part of an effort to make housing more affordable, a critical policy issue that has plagued Prime Minister Justin Trudeau and his Liberal government.

Freeland said the government was raising the cap on insured mortgages to $US1.5 million ($1.10 million) from $US1 million previously, which would allow more people to buy a home with the already required minimum down payment of 5% .

Previously, Canadians who do not pay at least one-fifth of the home’s cost as a down payment must take out mortgage insurance, but the insurance was only available for homes priced at $1 million or less. That limit is now $1.5 million.

In addition, buyers will be able to take out 30-year loans if they are first-time home buyers or someone buying a newly constructed home, Freeland said. Previously, the three-decade amortization period was limited to first-time buyers purchasing newly constructed homes.

The measures “will stimulate the building of more new homes and address the housing shortage,” Freeland said in a statement.

Trudeau’s poll numbers fell to a near-low of 30 percent in September, which analysts and economists said was primarily due to millions of people struggling with high prices, especially for homes and rents.

In Canada, mortgages are usually for 25 years, and the rate resets every three to five years. In the United States, homeowners can enjoy a fixed rate for the life of a 15- or 30-year mortgage.

Canada’s mortgage structure exposes most borrowers to rising interest rates and has fueled a housing affordability crisis that has been exacerbated by a record influx of immigrants.

($1 = 1.3593 Canadian dollars)

(Reporting by Promit Mukherjee in Ottawa; Editing by Frank McGurty and Leslie Adler)

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