Is the floor supported by logs? The one at the lower edge of the top picture looks round.

The one area of the floor appears to be broken or have rot in it.

If so to cover the area would only increase the moisture complicating the problem.

You may wish to return to Step one and reevaluate the total flooring system and/or get an opinion from someone experienced with this type construction.

The house is new to you and what you do you want to last, so you don't want to do a bandaid fix and have to redo it in 5 years possible costing a lot more

Your plan is fine, but 1-1/2" insulation is very little for cold climates. You could add more foam boards, or fiberglass over the foam board (of course you have to figure out how to hold it there). There are vendors selling used foam for much less than new. Tape the joints.

If you make sure you use a high R foamboard it should double what you have Now. Is 2 inch out of the question? Having a half inch less headroom might be worth a little more R value.

@KR Nuttle No, there are no logs supporting it - what you see in the photo is either a nailer for the fibreglass or a conduit for our electrical. I went and checked again and there doesn't appear to be any moisture or rot in that area! I take your point that I should check under the current insulation across the ceiling though.

@Seabornman @mojavemaria I think we could do 2 inch! I would have to look at code for headroom in the garage anyway.

Thanks for your input!

A few comments:

• I suspect you are not in the U.S., but I will speak to U.S. general code, Canada might mirror as life safety is universal, but verify for yourself.
• Foam must not remain exposed because of ease of ignition, so an intumescent paint complies as a thermal barrier.
• However, in an attached garage, a thermal barrier is not adequate. A garage must have fire separation, which consists of drywall. And when you have a habitable room above, it must be 5/8" Type X on the ceiling. It must also be firetaped (taped with a single coat of joint compound) and air sealed.
• There is no ceiling height minimum in a garage, only habitable spaces.
• The single most important plane to insulate for a room above a garage is the attic. Then that room's walls and windows. Then the floor and it's rim joist area (garage ceiling). Then the garage walls/door. But it is all relative to the performance of the HVAC design for that room.
• When insulating, air sealing is of greater concern to get right (if too much air moves freely between floors then the insulation is moot).
• Foam insulation has "air sealing" kind of built in so to say (foam boards when taped or sprayed at edges). Whether you have spray or sealed boards on the ceiling, both will hold water above them.