The Mortgage Store

Mortgage news date march 18, 2011

Canadian Minister of Finance, Jim Flaherty announced new mortgage rules for Canadians on January 17, 2011 that would start being implemented on March 18, 2011.

The federal government announced that Canadian mortgage insurance rules would be tightened because of concerns about rising household debt in the current low interest rate environment, placing consumers at significant financial risk once rates inevitably rise.

“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,” said Minister Flaherty.

The Bank of Canada and Mark Carney consistently warned Canadian consumers to rein in their debt in the latter part of 2010. However, the fragile Canadian economic recovery, moderately high unemployment, high Canadian dollar and subdued inflation signaled that Canadian interest rates would not be increased significantly in the short-term to curb debt.

As a result, the federal government chose to intervene on the issue by introducing three new mortgage rules to address their concerns on housing related debt.

New Canadian Mortgage rules Announced for 2011:

1.        Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80%.

·         Effective March 18, 2011

2.        Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85% from 90% of the value of their homes.

·         Effective March 18, 2011

3.        Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs.

·         Effective March 18, 2011

The key policy that will impact Canadian housing demand will be changes to government backed mortgage insurance, which go into effect on March 18, 2011. This essentially reduces the maximum amortization period available to a wide majority of Canadians to 30 years from the current 35 years.

This new rule effectively lowers the maximum loan amount that purchasers can borrow and/or increases their monthly payment for new government-backed insured mortgages with loan-to-value ratios of more than 80%.

Maximum refinancing rates will also be lowered to 85% from the current 90% and on April 18, 2011 mortgage insurance on non-amortizing lines of credit securitized by homes will also be eliminated.

So how will these new mortgage rules affect the Canadian real estate market?

As we have already seen with homes sales across the country in February 2011, the introduction of the new rules is resulting in stronger activity as buyers rush to beat the tougher mortgage rules that take effect on March 18, 2011.