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Finance Minister Jim Flaherty recently announced a series of mortgage rule changes aimed at addressing growing concern about increased household debt in Canada:
1. The changes will see Ottawa reducing the maximum amortization period from 35 years to 30 years;
2. Ottawa will also withdraw government insurance backing on lines of credit secured by homes;
3. Canadians will only be able to borrow up to 85 per cent of the value of their homes, down from 90 per cent.
The federal government is attempting to avert a similar path as the American market where people were creating consumer debt by refinancing every one to two years.
Buyers who purchase a home with a down payment less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.
The new rules will restrict mortgages with amortized periods past the 30 years brink from qualifying for that insurance. That essentially eliminates the possibility of Canadians getting access to mortgages with a term of more than 30 years.
Flaherty said that the intent is to stem the wave of consumer debt by reducing the total interest payments people with longer amortization on a mortgage would end up paying.