Canada's Mortgage Rules to Tighten
• Mortgage rules aimed at reining in elevated household household debt and reducing risks born by Canadian taxpayers, Canada’s Finance Minister Jim Flaherty announced recently another round of tightening mortgage rules.
• The federal government will make further modifications to mortgage insurance rules in March and April of this year, which will effectively alter the ground rules at the retail market level.
• Effective March 18, 2011, the maximum amortization period on government-backed insurance mortgages will be reduced to 30 years from 35 years.
• Effective March 18, 2011, the maximum refinancing amount that a homeowner can borrow against a government-backed insured mortgage will fall to 85% from 90% of the value of the home.
• Effective April 18, 2011, the federal government will withdraw its insurance backing on lines of credit secured by homes (e.g. home equity of credit or HELOCs.
Of the latest three changes, the reduction of the maximum amortization period to 30 years will have the most direct impact on the Canadian housing market. The changes to refinancing and HELOCs will more directly affect the financing tools available to consumers. Consumer spending will also be impacted indirectly by the shorter amortization, which will cause higher mortgage payments cutting into the remainder of household budgets. Generally, the shorter admissible amortization period will raise the cost of homeownership in Canada