Ottawa tightens mortgage rules
| Monday, 17 January 2011
Finance Minister Jim Flaherty announced a second tightening of mortgage rules in the past 12 months as Canadian household debt became a growing concern at the end of 2010 and historically low interest rates continued to persist.
The three main changes are maximum amortization periods will be reduced to 30 years from 35; the refinance limit of a home’s value will be lowered to 85 per cent from 90 per cent; and the government is also withdrawing insurance on home equity lines of credit.
The new rules will be effective March 18.
“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” Flaherty said in a press conference on Monday January 17. “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 MortgageBrokerNews.ca community was vocally upset in past news tips that Ottawa may restrict mortgage lending further, and a majority expressed Harper and Flaherty were tackling the wrong debt issues. Many brokers feel looser rules around credit cards and auto financing need to be re-examined.
The mortgage rules announcement is also two days before Gary Mauris, Dominion Lending Centres president, is set to meet Flaherty for a pre-budget consultation roundtable in Regina, Sask.
Peter Kinch, owner of a mortgage brokerage in British Columbia, said he expects the measures to put a rush on the real estate market as buyers seek to get in before the deadline.
It's similar to last year's changes by Flaherty to the borrowing rules, he said. Whether or not they have an effect, on borrowing, many Canadians are likely to push real estate activities up to avoid the changes, Kinch said. "It’s not really what these changes will do, but what the perception will be," he said.
Kinch said he was surprised that Flaherty acted so quickly this winter, but suspects there's a hidden message in the mortgage rule changes -- rate hikes are coming. This is a way for Flaherty to prepare Canadians to be more responsible with their borrowing ahead of the rise in borrowing rates, said Kinch.
"He’s clearly trying to cut back on Canadians using their houses as ATM machines," he said.