Here are few minor changes that the Finance Minister is implementing, effective March 18th. Changes include a drop in the maximum allowable amortization period to 30 years and a reduction in the amount an owner can borrow against the value of their homes to 85%.\u00a0 (Paul Vieira, Financial Post \u00b7 Monday, Jan. 17, 2011)<\/p>\n
OTTAWA \u2014 Finance Minister Jim Flaherty unveiled changes Monday morning to mortgage lending rules that would see Ottawa stop backing home loans greater than 30 years and make it more difficult for households to use their property to access financing.<\/p>\n
Stewart Hall, economist at HSBC Securities Canada, said the extraordinarily low-rate environment \u201cprovides all the incentive to consumers to borrow and spend and none of the incentive to save. You can try to [regulate] that away but that is apt to be fraught with significant frustration.\u201d<\/p>\n
The changes, as reported by the National Post on Sunday, emerged as worries escalate among Bay Street leaders and the Bank of Canada about the record levels of household indebtedness, and how conditions could deteriorate unless pre-emptive action was taken.<\/p>\n
The key change announced is that 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.<\/p>\n
Also, Mr. Flaherty lowered the maximum amount Canadians can borrow against the value of their homes, to 85% from 90%, on a refinancing; and removed federal government backing for home equity lines of credit, or so-called HELOCs, whose popularity soared in the past decade with growth double that of mortgage debt.<\/p>\n
“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries,” Mr. Flaherty said at a media conference. “The prudent measures announced [Monday] build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”<\/p>\n
Executives at Bank of Montreal applauded the government’s move.<\/p>\n
\u201cThe actions announced are prudent, measured, responsible and timely,\u201d said Frank Techar, president of personal and commercial banking at Bank of Montreal.<\/p>\n
The changes will be implemented in stages, with adjustments on amortization and refinancing limits coming into force on March 18. Government backing on HELOCs will be removed as of April 18.<\/p>\n
The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.<\/p>\n
The minimum down payment, at 5%, will remain as is. Further, there are no plans to target condominium purchases by requiring monthly condo fees be added to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage.<\/p>\n
Analysts at Scotia Capital said in a morning note the changes had been anticipated for some time. \u201cWe remain of our long-held belief that Canada is tapped out on housing and household finance variables that are all at cycle tops, in contrast to the U.S. that has already moved well off cycle tops and may be creating some pent-up demand,\u201d said economists Derek Holt and Gorica Djeric.<\/p>\n
The changes to the country\u2019s mortgage rules — the second in as many years — emerge amid rising concern about the record levels of household debt, which measured as a ratio of money owed to disposable income nears a startling 150% as of the third quarter of last year. That surpasses the level of debt held by American households, whose appetite for borrowing helped stoke the financial crisis of a few years ago.<\/p>\n
The Bank of Canada recently warned debt levels are growing faster than income, and the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a \u201csignificant change\u201d in how consumers borrow and banks lend.<\/p>\n
Bank of Canada governor Mark Carney said policymakers have a \u201cresponsibility\u201d to look at the benefits of pre-emptive action. Joining the chorus have been chief executives at the big banks, most notably Ed Clark at Toronto-Dominion Bank, in publicly advocating for tougher mortgage standards.<\/p>\n
Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages.<\/p>\n
In February of 2010, Mr. Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan; reduced the amount Canadian can borrow against their home, to 90% of the property value from 95%; and require purchasers of rental properties to issue a 20% down payment as opposed to 5%. The moves played a role, observers say, in slowing down real estate activity.<\/p>\n
The Scotia Capital analysts suggested government regulation was the way to go in terms of curbing household appetite for credit as opposed to the Bank of Canada raising interest rates, which they said would be \u201cimprudent\u201d at this time.<\/p>\n
The central bank issues its latest rate statement on Tuesday and it is expected to hold its benchmark rate at its present 1% level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"
Here are few minor changes that the Finance Minister is implementing, effective March 18th. Changes include a drop in the maximum allowable amortization period to 30 years and a reduction in the amount an owner can borrow against the value of their homes to 85%.\u00a0 (Paul Vieira, Financial Post \u00b7 Monday, Jan. 17, 2011) OTTAWA […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":""},"categories":[8],"tags":[11,10,9],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pa0qGx-C","_links":{"self":[{"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/posts\/38"}],"collection":[{"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/comments?post=38"}],"version-history":[{"count":8,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/posts\/38\/revisions"}],"predecessor-version":[{"id":42,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/posts\/38\/revisions\/42"}],"wp:attachment":[{"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/media?parent=38"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/categories?post=38"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/renerealestate.com\/blog\/wp-json\/wp\/v2\/tags?post=38"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}