Finance Minister Jim Flaherty announced three new rules for Canadian mortgages on Monday because he believes they will "protect the stability of the economy."
This is because according to the Bank of Canada Canadians "domestic debt burden is the highest on record. "
The three new rules for the mortgage industry will come into effect March 18. This is what they have changed:
1)Mortgage amortization periods will be reduced from 35 years to 30 years.
2)The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90 per cent to 85 per cent of the value of their homes.
3)The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
It is the third time in three years that Flaherty has tightened credit rules while interest rates remain historically low.
This move is said to prevent huge problems for people that are over leveraged when interest rates eventually go up. Flaherty is hoping that these moves will create more equity in peoples homes which will give home owners more stability.
Flaherty made this stunning comment on what people may be spending their line of credits on! "They are used to buy boats and cars and big-screen TVs, and that's not the business mortgage insurance was designed for," Here's a stunning statistic that spurred these changes "Canadian household debt is now at $1.4 trillion"
Many experts have said that they believe these changes will have little effect on the housing market because most of these rules with the exception of the 30 year amortization were already being applied by most banks. Naturally for people that are trying to leverage themselves for Real Estate investing these rules will make it harder but there are still plenty of opportunities out there!
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