Flaherty tightens mortgage taps

CBC News Monday, January 17, 2011
Federal Finance Minister Jim Flaherty announced tighter mortgage rules on Monday to combat concerns over high Canadian household debt.  "In 2008 and again in 2010, our government acted to protect and strengthen the Canadian housing market," Flaherty told a news conference in Ottawa. "We continue to do so today." Flaherty unveiled three main changes:

• The maximum number of years the government will back a mortgage was lowered from 35 to 30.
• The upper limit that Canadians can borrow against their home equity was lowered to 85 per cent from 90 per cent.
• Government insurance backing on home equity lines of credit, or HELOCs, has been removed.

The first change is likely to have the largest impact. Buyers who purchase a home with less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation. Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada. After companies began insuring mortgages of 40 years or more, Ottawa set the limit at 35 years in 2008 before Monday's move lowered it to 30.