The Harper Government Takes Prudent Actionto Support the Long-Term Stability of Canada's Housing Market
The Honourable Jim Flaherty, Minister of Finance and the Honourable Christian Paradis, Minister of Natural Resources today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada's housing market and support hard-working Canadian families to save through home ownership.
"Canada's strong housing sector-our well-regulated mortgage market and responsible lending-has been an important strength that allowed us to avoid the mistakes made by others and protected us from the worst of the recent global recession," said Minister Flaherty. "The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future."
"The economy continues to be our Government's top priority," continued Minister Paradis. "Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada's housing market."
The new measures:
· Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages beforethey retire.
· Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
· Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
Our Government's ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, haveallowed Canada to maintain strong and secure housing and mortgage markets.
The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.
Finance Minister Jim Flaherty is expected to introduce new regulations on Monday designed to reduce Canadians' skyrocketing household debt levels.
Flaherty will announce the new measures at a news conference scheduled for 8 a.m., before North American markets open.
CTV News has learned that Flaherty will unveil three new rules:
*Mortgage amortization periods will be reduced to 30 years from 35 years.
*The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from the current 90 per cent.
*The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
According to a government official, the rules are aimed "at encouraging responsible lending and borrowing and encouraging people to increase their home equity."
"The rules are designed to significantly reduce interest payments to help Canadians get rid of their mortgages before they retire," CTV's Ottawa Bureau Chief Robert Fife reported Sunday evening.
The new rules comes on the heels of a Bank of Canada announcement that Canadians' domestic debt burdens had hit the highest levels on record. The bank said earlier this month that the ratio of household debt to disposable income has reached 147 per cent.
Canadian household debt is now at $1.4 trillion, while mortgage delay payments have increased by 50 per cent," Fifesaid.
"In fact, the International Monetary Fund says household debt is the number one risk to the Canadian economy."
Information provided by: Brenda Matfin.Trusted Mortgage Advisor, Scotiabank.