2. Effective July, changes by the minister of
finance, Jim Flaherty, reduced the maximum
amortization period for a government-insured
mortgage from 30 to 25 years. At the same time,
he dropped the upper limit that Canadians can
borrow against their home equity from 85% to
80%.
3. Reducing the amortization from 30 to 25 years
targets first-time home buyers, who had been
able to take advantage of the longer
amortizations to qualify for a mortgage. A 25-
year amortization may force them to wait.
4. Homeowners who need to
refinance and now can’t
will seek out more expensive
private, unsecured lending
products and credit cards.
Because a high percentage
of mortgage refinancing dollars
has been spent on home improvement and
other consumer spending, this change could
affect the economy adversely.
5. The industry has already felt
the fallout from tighter lending
criteria by Canada Mortgage
and Housing Corporation:
Mortgage applications that had been easily funded
will now be more difficult. Earlier this year Flaherty
said, “People are paying down their consumer
debts more than they used to, and that’s a good
thing in terms of personal and family responsibility
because credit card debt, as we all know, is very
expensive debt in terms of interest rates.”
6. It appears consumers have been managing their
debt on their own. So why did the government
feel the need to make additional changes?
Possibly to curtail potential housing bubbles in
Toronto and Vancouver. Will the strategy work
without causing a chill in the housing industry as
a whole? Only time will tell.
