Flaherty Clamps Down On Mortgage Rules To Cool Overheating Market
Acknowledging his concern that Canada’s housing market is overheating, Finance Minister Jim Flaherty is clamping down with four changes to mortgage insurance rules, The Globe and Mail reported. At a news conference in Ottawa, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years. Secondly, the maximum amount of equity homeowners can take out of their homes in a refinancing is being reduced to 80 per cent from 85 per cent. In an effort to ensure taxpayer-backed mortgages are not going to wealthy Canadians, the availability of insured mortgages will be limited to homes with a purchase price of less than $1-million. And lastly, there will also be a new rule aimed at ensuring the size of a loan is not too big in comparison to household income. The maximum gross debt service ratio will be fixed at 39 per cent and the maximum total debt service ratio at 44 per cent. The changes will take effect on July 9, 2012. “We want people to make sure that when they purchase the most important purchase they’ll probably ever make in their life, that they do so in a prudent way. And some calming of the market is desirable,” said Mr. Flaherty. Though Canada's big banks were caught off guard by the mortgage changes when word of the adjustments emerged late Wednesday, some lenders said Thursday they support the changes. "Canadian household debt levels have reached levels that raise concern,” Tim Hockey, head of retail banking at Toronto-Dominion Bank said. Read more.