The Canadian government is thinking about introducing new regulations on mortgage standards to reduce the amount of debt that people take on when they have no hope or will have a hard time paying it back or handling it.
Finance Minister Jim Flaherty told CTV this week that there is much concern about people who are jumping to sign up for mortgages when the interest rates are low and who will most likely be facing harsh consequences when the interest rates inevitably rise
The changes that are being considered include increasing minimum down payments to something higher than the current five per cent, as well as lowering the amortization period to something less than the maximum 35 year timeframe, but the minister did not state any particular or specific numbers. According to a recent Scotiabank report, 10 per cent of mortgages in Canada are over a duration of 35 or 40 years, and 18 per cent are for durations longer than 25 years.
In 2008, the Canada Mortgage and Housing Corporation had already shortened the maximum mortgage amortization period down to 35 years, down from 40 and made the minimum home down payment five per
Last week Mark Carney, the governor of the Bank of Canada, warned that Canadians should be prepared for when the interest rates rise from the emergency low they currently are, and that taking on too much debt can pose problems for homeowners.
These changes would possibly make it more difficult for first-time homebuyers to finance the purchase of a house, but it is likely that they will have to wait until later next year when the spring housing sales begin to pick up so the government and the Bank of Canada can monitor the situation and decide whether or not to implement any new rules.
“If we see – which we have not seen – but if we see clear evidence of an upward bubble, particularly with respect to insured mortgages, then we have some tools available which we’ve used before and we can use again,” Flaherty told Reuters this week.
Julian Merry is a Broker with Royal LePage/Johnston & Daniel Division. Julian is a regular contributor to the Muddy York Toronto Real Estate Blog. Julian’s website is located at www.julianmerry.com.
