Finance Minister Jim Flaherty announced new rules for Canadian mortgages on Monday morning that he said will “protect the stability of the Canadian economy”.
The announcement comes from a recent warning that the Bank of Canada said that Canadians’ debt levels are too high and are the highest on record.
There are three new rules for the mortgage industry that will take effect on March 18th.
These include mortgage amortization periods reduced from 35 years to 30 years, the maximum amount Canadians can borrow to refinance their homes will be lowered from 90% to 85% of the value of their homes and the government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
Flaherty said, “The new changes are intended to ensure that Canadians don’t slip into unmanageable debt, which could throw the economic recovery off the rails.”
The government says that consumer debt is the issue and that some are borrowing at the maximum amount of their income levels, and that those non-prudent Canadians that are buying at those levels won’t be able to manage their debts once renewal time comes around, because interest rates are going to inevitably rise.
A few short years ago, the government followed the U.S. to increase amortizations on homes to 40 years from 25 in a short period of time. And now it seems that year-by-year they are lowering the amortizations back to the 25-year level.
But we’ll have to wait until next year for that prediction to come true.
Traditionally homes are supposed to go up in value, and they are the cornerstone of the economy that gets it back on track after a recession and now they are limiting Canadians again on what they can purchase.
But they admit that the real problem herein is consumer debt.
They’ve made some minor changes to payment structure on credit cards but the real problem there is the amounts these companies provide to the consumer, without any security, and barely any income confirmation yet making homes more difficult to finance for the prudent and non-prudent, but yet this client is allowed to have as many credit cards as he wishes with a 19% interest rate.
How does this make any sense?
I’ve helped many Canadians buy their first homes, upgrade their homes and also refinance their homes.
Whether they’ve taken a 20-year or 35-year amortization all of my clients are educated on the prepayment privileges and the benefits of accelerated weekly or bi-weekly payments and 95% of them choose one of these cost saving structures that lowers their total repayment time by more than 15% and saves them thousands of dollars by doing so.
During Flaherty’s question period on CTV he mentioned that most Canadians are very prudent and that defaults on mortgages are only at 0.4% of total mortgages outstanding and that figure didn’t change from the year previous.
So my question to Flaherty is, did the big five banks say something to the effect that they’ll concede to these changes on mortgages as long as you don’t touch their highly profitable 19% interest rate credit cards?
Jean-Guy Turcotte is an Accredited Mortgage Professional with his partners at Dominion Lending Centres- Regional Mortgage Group and can be reached for appointments at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.
