Should Mortgage Rules be Tightened Further?

Mortgage brokers and banking economists are at odds about whether or not Canada’s mortgage rules should be tightened once again, making it more difficult for more people to get mortgages. Mortgage brokers disagree with each other, and bankers can’t seem to agree among themselves either. But why are we even asking the question?
A look at current consumer debt, says some who are in favour of tightening the rules, is all that’s needed to see that tighter mortgage rules are necessary. Otherwise, we may be headed into a credit bubble, and have people borrowing money who simply can’t afford it. Preventing this problem, argues some mortgage brokers, is worth a tightening of the rules right now. These supporters of mortgage tightening also argue that while banks and mortgage brokers would both feel a slight pinch at the onset of the tightening, everyone would benefit from it in the long-run.
So what ‘tightening’ are these supporters proposing? Well an increase in mortgage insurance for one, which would make it even more difficult for consumers who already can’t come up with a 20% down payment to ever get a mortgage. And, reducing the 30-year amortization cap could be another area where mortgage rules could be made even more stringent.
But, not all mortgage brokers and lenders feel this way. Many feel that with Canada’s quick rebound from the recession, there’s no need to worry about too many borrowers on the market. And, mortgage brokers also point to the fact that refinancing has been down 40% this year, a sure sign that Canadian consumers aren’t interested in rampant borrowing. And instead of looking to reduce the number of mortgage approvals, perhaps government agencies should be investigating unsecured debt, meaning credit cards, a little more closely. The biggest argument for that is the fact that while a mortgage is what every expert will agree is “good debt,” there’s nothing good about paying exorbitant interest rates and trying to climb out of an impossibly deep hole.
Most experts agree that at this time, Canada’s economy is strong enough to handle the low Bank of Canada interest rate; and that this rate isn’t going to cause a huge influx of borrowers to the market that can’t afford a mortgage. What tighter mortgage rules will do, most mortgage brokers agree, is drag down an economy at one of the very worse times – when it’s thriving.