January 17, 2011 - Finance Minister Jim Flaherty announced new rules for Canadian mortgages on Monday that he said will "protect the stability of the economy."
Flaherty's announcement comes on the heels of a recent warning from the Bank of Canada that Canadians' domestic debt burden is the highest on record.
The Monday announcement included three new rules for the mortgage industry:
- Mortgage amortization periods will be reduced from 35 years to 30 years.
- The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90 per cent to 85 per cent of the value of their homes.
- The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
"Taxpayers should not bear any risk related to consumer debt products unrelated to house purchases. Those risks should be managed by the financial institutions that originate and offer these practices," Flaherty said Monday.
The new restrictions are intended to ensure that Canadian don't slip into unmanageable debt, which could throw the economic recovery off the rails, he said.
"Today's measures are about our government continuing to protect the stability of the economy by ensuring lenders' practices are sustainable, which will in turn ensure Canadian families have increasingly secure and sustainable home ownership."
"This will also help increase the savings of Canadian families, savings of tens of thousands of dollars over the life of a mortgage."