There are changes to the mortgage rules announced this morning by Canadian Finance Minister Jim Flaherty. Apparently pr-emptive action is being taken because of the growing concern by the Bank of Canada over rising household indebtedness.
The key mortgage changes are
• Mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years. This change could affect 20,000 home sales annually and the average price may weaken slightly.
• Maximum amount Canadians can borrow against the value of their homes, lowered to 85% from 90% on a refinancing
• Federal government backing for home equity lines of credit, or so-called HELOCs, is removed, lines of credit popularity soared in the past ten years and has grown two times more than mortgage debt.. Home equity lines of credit now represent 12% of overal hoousehold debt.
• Adjustments on amortization and refinancing limits coming into force on March 18.
• Government backing on HELOCs will be removed as of April 18.
Thankfully the Government has decided to leave the minimum down payment on a home at 5% as to not create any shock in the market; also condominium owners get a repreave as there are no plans to include monthly condo fees into the list of expenses measured against income when a buyer is being considered for a mortgage.
Interest rates are expected to remain low at 1% prompting some analysts to say that this provides incentive for people to borrow and spend but no incentive to save while others say that these new measures are the way to go in terms of curbing household appetite for credit instead of raising interest rates.