OTTAWA – Today, the Honourable Jim Flaherty, Minister of Finance, announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.
“These changes will significantly reduce the total interest payments for Canadian homeowners,” said the Hon. Laurie Hawn, Member of Parliament for Edmonton Centre and Parliamentary Secretary to the Minister of National Defence. “These new measures are a great tool to promote saving through home ownership and will help keep money in the pockets of hardworking Canadian homeowners”.
These new measures will:
• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
Minister Flaherty’s announcement is the second time in three years that the government has clamped down on mortgage rules. In 2008, the Government made several alterations, including:
- Cutting the maximum amortization period to 35 years from 40.
- Requiring a minimum down payment of five per cent.
- Requiring the lender to make a reasonable effort to verify that the borrower can afford the loan payment.
- Establishing a requirement for a consistent minimum credit score.
- Introducing new loan-documentation standards.
“With the economic recovery still fragile, we are focused on ensuring stability and certainty in Canada’s housing market” said MP Hawn. “The prudent and sensible measures announced today will help sustain the economic recovery by ensuring the long-term stability of Canada’s housing market.”
The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.