Canada announces new mortgage rules

The Canadian government has introduced new rules governing mortgages in an effort to keep home-buyers from being harmed when mortgage rates increase.

The CBC reports, Finance Minister Jim Flaherty, said at a news conference, "There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one. If some lenders aren't willing to act themselves, we will act." The new plan has three components. The first rule is all borrowers must qualify for a five-year fixed-rate mortgage. This rule applies even if they choose a variable mortgage with a lower rate or a shorter term. "This will guard against higher rates in the future," Flaherty said. Also, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent. The third and last a minimum 20 percent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment. The third rule is designed to control real estate speculators who own multiple properties beyond their primary residence. "We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation," Flaherty said. Prior to the announcement there had been some talk that the Department of Finance might implement legislation raising the minimum down payment from five to 10 percent of a home's value, or reduce the maximum amortization period from 35 years to 30 years. However, this did not happen. The CBC reports that the Bank of Montreal issued a release saying, "While we do not believe that Canada faces a housing bubble, we fully support the minister's actions. Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent." "This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage," Royal Bank chief economist Patricia Croft told the CBC. Croft speculated the new rules may cause more short-term stimulation of the market, as people scramble to get in under the deadline. "If you wanted to buy a house, wouldn't you now do it before April?" Croft asked. "It's even more evidence that house prices are going to cool down later this year."