On June 21st, Canada’s federal government announced a further tightening of Canadian mortgage regulations effective July 9th. In the announcement, Finance Minister Jim Flaherty stated that the new regulations were introduced “to keep the housing market strong, and help to ensure households do not become overextended.”
- the maximum amortization period being reduced to 25 years from the previous 30 years.
- the maximum amount of equity homeowners can take out of their homes in a refinancing is being reduced to 80% from 85%.
These new mortgage regulations echo earlier reductions of amortization period and lowered refinancing maximums that came into effect last year. Click here for full details on Canada’s new mortgage regulations.
Although the changes have been endorsed in the media by Canada’s big banks, including TD and Bank of Montreal, the Canadian Real Estate Association (CREA) urges the government to carefully consider the impact of further interventions in the market. It is well known that housing is a key driver of the economy. In fact, according to CREA, re-sale housing will add an estimated $20 billion in spin-off spending and over 165,000 jobs to the Canadian economy in 2012. CREA also cautions the government to closely monitor the impact of these measures to ensure they have the desired effect without slowing the economy.
Meanwhile, the Canadian real estate market remains balanced, and Canada continues to enjoy near-historic low interest rates. The dream of homeownership remains in reach for a large number of Canadians. While the reduction in maximum amortization period may affect some buyers, there are many who will not be impacted by the changes. Others who may have planned to amortize their mortgage over a 30-year period have several options, including saving for a larger down payment, choosing a slightly lower-priced home in their target area, or consider trading location for commute. There are a variety of options, and buyers should seek the advice of a real estate professional or mortgage broker to find the solution that’s right for them.