CBC News Posted: Jun 21, 2012 9:08 AM ET
Finance Minister Jim Flaherty outlined new rules aimed at reining in a hot housing market Thursday and ensuring Canadians aren't taking on more debt than they can afford. Flaherty outlined a series of changes to the rules that govern the Canada Mortgage and Housing Corporation, the crown corporation that effectively oversees the housing market by insuring the vast majority of Canadian mortgages. The most important new change is that the maximum amortization period to 25 years, down from 30. The longer a mortgage is spread out, the lower the monthly mortgage payments are — but the more the borrower ends up paying overall over time. Ottawa has now moved three times to rein in the maximum mortgage term, since the CMHC briefly started insuring mortgages with 40-year terms in 2006. The limit was brought down to 35 years, then 30 and now the more traditional 25. "The reductions to the maximum amortization period since 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage," Flaherty said. "Our government has encouraged Canadians to borrow responsibly," Flaherty said. "Most Canadians have done so." Flaherty also outlined a few other measures Thursday. The government has lowered the total amount that Canadians can withdraw when refinancing their homes to 80 per cent of the home's value, from 85 per cent. "This will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes," Flaherty said. Flaherty also moved to cap the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent in order to get CMHC insurance. Those two ratios are technical limits on how much debt a borrower is allowed to take on as a percentage of their overall income. This move, too, is aimed at making sure a borrower can't bite off more than he or she can chew. The final change was to limit CMHC insurance to homes priced under $1 million. In addition to not being able to access CMHC insurance, Flaherty said the new rule will be that a buyer of a home priced higher than $1 million must have 20 per cent or at least $200,000 down. "Wealthy people can borrow whatever they want from banks, and they can work that out from banks," Flaherty said. "That is not my concern." All of the changes will be in effect as of July 9, 2012.
Finance Minister Jim Flaherty outlined new rules aimed at reining in a hot housing market Thursday and ensuring Canadians aren't taking on more debt than they can afford. Flaherty outlined a series of changes to the rules that govern the Canada Mortgage and Housing Corporation, the crown corporation that effectively oversees the housing market by insuring the vast majority of Canadian mortgages. The most important new change is that the maximum amortization period to 25 years, down from 30. The longer a mortgage is spread out, the lower the monthly mortgage payments are — but the more the borrower ends up paying overall over time. Ottawa has now moved three times to rein in the maximum mortgage term, since the CMHC briefly started insuring mortgages with 40-year terms in 2006. The limit was brought down to 35 years, then 30 and now the more traditional 25. "The reductions to the maximum amortization period since 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage," Flaherty said. "Our government has encouraged Canadians to borrow responsibly," Flaherty said. "Most Canadians have done so." Flaherty also outlined a few other measures Thursday. The government has lowered the total amount that Canadians can withdraw when refinancing their homes to 80 per cent of the home's value, from 85 per cent. "This will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes," Flaherty said. Flaherty also moved to cap the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent in order to get CMHC insurance. Those two ratios are technical limits on how much debt a borrower is allowed to take on as a percentage of their overall income. This move, too, is aimed at making sure a borrower can't bite off more than he or she can chew. The final change was to limit CMHC insurance to homes priced under $1 million. In addition to not being able to access CMHC insurance, Flaherty said the new rule will be that a buyer of a home priced higher than $1 million must have 20 per cent or at least $200,000 down. "Wealthy people can borrow whatever they want from banks, and they can work that out from banks," Flaherty said. "That is not my concern." All of the changes will be in effect as of July 9, 2012.
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