The federal government is tightening up rules for mortgage financing in the hope of saving Canadians from getting burned when interest rates rise.
Changes due to take effect April 19 will require all borrowers to qualify for a five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This change is intended to help Canadians prepare for higher interest rates in the future.
Another change will lower the maximum amount Canadians can withdraw when refinancing their mortgage, to 90 per cent from 95 per cent of the value of their homes. A third change will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation. The previous requirement was 15 per cent.
Even though Canada’s housing market is healthy and stable, some changes were in order, said federal Finance Minister Jim Flaherty.
“A key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing,” Flaherty said.
The changes are aimed at preventing Canadian households from getting overextended and preventing some lenders from facilitating it. It also aims to support the long-term stability of Canada’s housing market while continuing to encourage home ownership for Canadians, Flaherty said.
Some analysts suggest that prices in some Canadian markets could be rising past their fundamental value, creating fears of a housing bubble that would eventually burst.
“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one,” Flaherty said.
Mortgage associate Tara Hardern said the rules are good because fewer people who really can’t afford a mortgage will qualify. However, some first-time home buyers will be cut out of the market and the industry is already well-regulated, she said.
“I don’t think we needed to be more regulated,” Hardern said. “I don’t really think the government needs to save people from themselves. I think the government should be taking more action to educate people instead of just regulating them.”
Larry Westergard, president of the Realtors Association of Edmonton, didn’t think the changes would have much effect on entry-level buyers.
“We’re very pleased that the government didn’t touch minimum down payments, they didn’t reduce amortization periods,” he said. “It’s a good tweak but it doesn’t change the fundamentals of how business is done. I think it’s a good thing for all of us.”