On June 21st, 2012 the Government of Canada introduced a number of product and policy changes with regards to the Mortgage Insurance Guarantee Parameters but a recent survey suggests many people are unfamiliar with the changes. These changes have been put in place to encourage Canadian families to reduce debt and increase savings. Central Bank Governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt, and that they could face problems once interest rates, which sit at historic lows start rising or if there is a second economic crisis. The tightening, announced by Finance Minister Jim Flaherty was Ottawa’s latest attempt to slow down the accumulation of debt of Canadian households, which reached a record 152% of income in the fourth quarter of last year. Flaherty acknowledged that the recent tightening of mortgage rules may dampen economic growth in the country, but he said the government prefers to take that risk over allowing a housing bubble to develop.
Flaherty has tightened mortgage insurance rules four times since 2008. Following each move, national average resale housing prices declined, only to regain the lost ground and continue climbing, according to data from the Canadian Real Estate Association.
Big lenders such as RBC and TD caution there are also risks associated with trying to slow down the housing market even though they agree with the new rules. The Bank of Canada will likely want to see the impact these new rules have on domestic spending before raising rates.
The new rules are listed below:
Lenders can only issue home equity loans up to a maximum of 80% of a property’s value down from 85%.The maximum amortization period also drops to 25 years from 30 years, In addition, the federal government is capping the maximum debt ratios for households and mortgages are now only available on purchases with a purchase price of less than $1 million. A down payment of at least 20% will be required on mortgage loans for homes priced at or above $1 million.
It will take some time before the compound effect of previous and recent changes to regulations on Canada’s housing market becomes apparent. The recent changes will have an effect on how Canadians purchase property, so it’s more important now than ever to seek clarity on the current guidelines in place.
The first link below offers some valuable insight and how these changes will affect your mortgage decisions in the future or if you have any questions please contact me at my email below.
Tanya Miedema, Axiom Mortgage Solutions