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Canada Introduces Strict Mortgage Rules to Control Mortgage Debt

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The Canadian government has been concerned about the growing mortgage debt in the country for quite a while. Mortgage debt has increased by almost 90% in the last decade and personal debt level in Canada has crossed that of U.S after a long gap of ten years.  To combat this, the government has come up with strict mortgage rules. Jim Flaherty, finance minister recently announced that the maximum mortgage period for a government insured property has been cut down to 30 years from 35 years. He further added that the highest amount that can be drawn against collateral has been lowered and the insurance on HELOC has been revoked as well. The above steps by the government will allow the Bank of Canada to halt its plan to increase the interest rate in order to bring down mortgage debt.

The Bank of Canada was contemplating increasing the rates to counter mortgage debt. However, the announcement by Flaherty has lead to postponing the idea. Flaherty, however, told the press that the fiscal decisions of the government and that of the Bank of Canada are independent of each other. Nonetheless, the government policies, Flaherty said, would complement the Bank of Canada’s policies.

The Canadian economy is already facing a crisis owing to the recent financial depression. Consumer debt is soaring; debt settlement and debt consolidation companies are making unprecedented profits. The mortgage debt problem threatens to make the situation worse. The bank of Canada has already cautioned people about the soaring of mortgage debt though it has not increased the borrowing costs thanks to the initiatives taken by the government.

The financial experts opine that the increase in the interest rate is just a matter of time. By the end of this year, the interest rate is expected to climb from 1% to 2%. As a result, the mortgage lending rate can drop which would weigh on the banks but one cannot deny that the market needs some slowdown. However, the mortgage industry and the banks have welcomed the new rules. They perceive it as a pragmatic and sensible step which was much needed. Important figures from the banking industry like Frank Techar also believe that the new rules won’t harm the mortgage business in a significant way. Flaherty too mentioned that the new mortgage rules are essentially to precautionary in nature and are unlikely to affect the industry in a major way. The Canadian government emphasizes the importance of a stable and balanced mortgage market to maintain a healthy economy.

It might be relevant to mention here that the government has already tightened the mortgage rules a couple of times in the recent past. Last February, Flaherty introduced rules regarding fixed mortgage rates. In 2008, the amortization period was reduced to 35 years from 40 years. It was also made mandatory to insure mortgages in case the down payment was less than 20% of the value of the collateral.

The new mortgage rules will come into effect from March 2011.

Related articles

• Feds announce tighter mortgage rules to rein in record household debt (teamfisher.com)
• Canadian Government Changes Mortgage Rules Again (ratesupermarket.ca)
• New Mortgage Regulations – Your Questions Answered (ratesupermarket.ca)

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Tagged as: Bank of Canada, buying, mortgage, mortgage lender, Mortgage loan

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