Canadian Finance Minister Jim Flaherty recently announced a
new change in mortgage rules. The maximum mortgage amortization period has been
slashed from 35 years to 30 years. This change will be effective starting
March 18, 2011. This means that the maximum borrowing amount will drop when
buying homes or refinancing mortgages. Home
equity lines of credit will also stop being insured by the government. The
Canadian government is taking a cautious approach, keeping in mind the housing
market collapse in the United
States.
The shorter amortization won’t impact Canadians’ ability to
make monthly mortgage payments, with some citing just an extra $50 in payment each
month. However, the lower mortgage amortization will make it difficult for
homebuyers who fail to qualify for the higher monthly payment. Canadians who
struggle to make a down payment or have bigger debts could have a tough time
with the new mortgage rules. On the bright side, the lower amortization will allow
Canadians to save up to $15,000 on thirty-year mortgages when five years are
chopped off the amortization.
But the lower mortgage amortization may not be such a bad
thing after all. University of Alberta professor Joseph Doucet said that
mortgage rule changes are aimed at reducing risk by making it harder for people
who may face difficulties in honoring payments in the event of a rate rise, to
get a mortgage. The new rules are set to benefit Canadians by creating
conditions that do not encourage excessive household debt.
