Federal finance minister Jim Flaherty announced Monday morning in Ottawa regulatory changes to government-backed insured mortgages – changes designed to stabilize Canada’s housing market and rein in Canadians’ borrowing habits, which have been fuelled by record-low interest rates.
The changes include a reduction from a 35-year to 30-year maximum amortization period for new government-backed insured mortgages in which homeowners have put less than a 20% down payment on the purchase of their home.
“This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly and help Canadians pay off their mortgages before they retire,” said the Ministry of Finance in a release.
Flaherty also said that, in order to promote saving through home ownership and to limit the repackaging of consumer debt into mortgages guaranteed by taxpayers, the government is lowering the maximum amount Canadians can borrow in refinancing their mortgages from 90% to 85% of the value of their homes.
The government is also withdrawing government insurance backing on lines of credit secured by homes, such as home equity lines of credits (HELOCs).
The withdrawal is supposed to ensure the risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by financial institutions and are not borne by taxpayers.
“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”
The adjustments to the mortgage insurance guarantee framework are to take effect March 18, 2011.
The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.