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To Refinance or Not: Weighing the Pros and Cons


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The Canadian mortgage market is a critical component of the country’s economy, allowing individuals and families to invest in real estate and build wealth over time. However, the Canadian government plays a significant role in shaping this market through various policies and regulations. In this blog post, we’ll explore how Canadian government policies impact the mortgage market and what changes may be on the horizon.

Mortgage Stress Test

One of the most significant ways that Canadian government policies affect the mortgage market is through the mortgage stress test. In 2018, the Canadian government introduced this test to ensure that borrowers could afford their mortgage payments even if interest rates were to rise. This policy requires borrowers to qualify at the greater of the contract rate plus 2% or the Bank of Canada’s five-year benchmark rate. While this policy has helped to prevent borrowers from taking on more debt than they can handle, it has also made it more difficult for some borrowers to qualify for mortgages.

Foreign Buyer Taxes

Another way that Canadian government policies impact the mortgage market is through foreign buyer taxes. In recent years, many Canadian cities, including Vancouver and Toronto, have implemented taxes on non-resident buyers to cool down the housing market and make it more affordable for Canadians. These taxes have had some success in slowing down housing prices, but they have also reduced the number of foreign buyers in the market, which can have an impact on the overall demand for housing.

Down Payment Requirements

The Canadian government also plays a role in setting down payment requirements for mortgages. In 2021, the minimum down payment for a home worth $500,000 or less was 5%, while homes worth more than $500,000 require a down payment of 10% on the portion of the home’s value above $500,000. This policy is designed to ensure that borrowers have a stake in their home and are less likely to default on their mortgage.

Mortgage Insurance


The Canadian government also offers mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC), which helps borrowers with a down payment of less than 20% qualify for a mortgage. This insurance protects lenders in case borrowers default on their mortgages. The government has also introduced policies to limit the amount of mortgage insurance that lenders can purchase, which can help to reduce the overall risk in the housing market.

What Changes Are on the Horizon?

As with any industry, the Canadian mortgage market is constantly evolving, and government policies are no exception. Here are a few potential changes that could impact the Canadian mortgage market in the coming years:

Potential Changes to the Mortgage Stress Test

There has been some discussion about potentially revising the mortgage stress test to make it easier for some borrowers to qualify for mortgages. This could include reducing the qualifying rate or allowing borrowers to choose between the qualifying rate and their actual mortgage rate. However, any changes to this policy would need to be carefully considered to avoid creating excessive risk in the market.

Possible Changes to Down Payment Requirements

There has also been talk of potentially increasing the minimum down payment requirements for some borrowers. This could help to reduce the overall risk in the housing market and ensure that borrowers have a significant stake in their homes. However, this policy could also make it more difficult for some borrowers to enter the market.

Changes to Foreign Buyer Taxes

There has been some debate about whether to increase or decrease foreign buyer taxes in certain Canadian cities. While these taxes can help to cool down the housing market, they can also reduce the overall demand for housing, which can impact housing prices and the overall economy. The two year ban of foreign nationals being able to buy a home in Canada took everyone by surprise and is still up for debate.

In conclusion, Canadian government policies play a crucial role in shaping the mortgage market, ensuring that borrowers can afford their mortgages and reducing the overall risk in the housing market. The mortgage stress test, down payment requirements, and mortgage insurance are just a few examples of policies that impact the mortgage market. However, as the housing market continues to evolve, potential changes to these policies could impact the mortgage market in the coming years. It will be essential for policymakers to carefully consider any changes to these policies to ensure that they balance the needs of borrowers and lenders and maintain the stability of the Canadian housing market. Ultimately, a healthy and stable housing market is essential for the economic well-being of Canadians, and government policies will continue to play a critical role in achieving this goal.

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