Updated: Thu Jun. 21 2012 9:08:27 AM Staff

Finance Minister Jim Flaherty announced new mortgage rules Thursday that will make it tougher for Canadians to purchase homes.

The announcement marks the fourth time in four years the Conservatives have tightened the rules around mortgages in Canada.

Among the changes announced Thursday to the Canada Mortgage and Housing Corporation: the maximum amortization period for a mortgage will be reduced from the current 30 years to 25 years.

"This will further reduce the total interest payments Canadian families make on their mortgage, helping them build up value in their homes more quickly and pay off their mortgage debt sooner," Flaherty said.

And homeowners looking to borrow against the equity they have in their homes will be limited to a maximum of 80 per cent of the home's value, down from the current 85 per cent.

"Limiting the amount of refinancing will encourage homeowners to prudently manage borrowing against their properties and keep equity in their home," Flaherty said.

The changes come as Flaherty and Bank of Canada Governor Mark Carney warn that Canadians' debt levels are reaching record highs.

During his address, Flaherty said the U.S. economic woes have proven that an unhealthy housing market "can dictate the health of the broader economy."

Flaherty also announced changes to debt service ratios -- the percentage of income that an individual is allowed to take on as debt. The maximum gross debt service ratio will be capped at 39 per cent, while the maximum total debt service ratio will be capped at 44 per cent.

And Flaherty said the government is limiting mortgage insurance to homes under $1 million. Those who purchase homes worth more than $1 million will be required to have a down payment of 20 per cent or more, but will not have access to mortgage insurance.

CTV's Chief Financial Commentator Pattie Lovett-Reid said the government is trying to protect Canadians from over-extending themselves financially.

"We know interest rates are artificially low, they are going to go up," Lovett-Reid told CTV's Canada AM. "Think of the worst-case scenario: If interest rates go up, are you going to be able to afford the payments? They're concerned the real estate market in Canada is overheated, a bubble is starting to form, and they're saying we're going to slow it down.



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