Finance Minister Jim Flaherty and the Honourable Christian Paradis, Minister of Natural Resources, have announced new mortgage rules for government backed insured mortgages.
The new mortgage rules will have three key changes that are aimed at helping Canadian's limit their debt.
The first major change is to reduce the maximum amortization period to 30 years from 35 years. This rule will effect government backed insured mortgages, with loan to value ratios of more than 80 percent. The goal is to significantly reduce the total interest payments made over the life of a mortgage. This will allow families to increase the equity in their home quicker.
The second change will see the maximum amount of Canadians can borrow in refinancing their mortgage. The current rule allows for refinancing up to 90 percent of a homes’ equity, however the new rule will see that limited to 85 percent of equity. This will limit the debt into mortgages guaranteed by the government.
Finally, the government will no longer offer insurance on credit secured by homes through Home Equity lines of credit.
“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 prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”
“The economy continues to be our Government’s top priority,” continued Minister Paradis.
“Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”
The current plan is to see these new rules take effect in 60 days.
It is expected that there will now be a rush to purchase a home, due to the new qualifications required. The resale home industry witnesses the same sort of rush last year when mortgage rules where changed, while lead to one of the hottest resale markets on record.