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Ottawa tightens mortgage rules

Maximum amortization period for loans backed by government reduced to 35 years.

Concerned about the "risk of a U.S.-style housing bubble developing in Canada," the federal government has tightened rules on government-backed mortgages including limiting the use of popular, but controversial forty-year amortizations.

Longer-term rates of up to 35 years will still be allowed under new rules which are seen as a pre-emptive move to quell the kind of housing implosion in the United States not seen since the Great Depression.

"They are obviously quite concerned about what is happening in the United States, and the spillover into Canada," said Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals. "The government is looking at their risk tolerance and the impact on Canadians."

Murphy said 37 per cent of all new Canadian mortgages taken from the one-year period ending in the fall of 2007 were longer than the standard 25-year amortization period. "Longer-term mortgages have been extremely popular with Canadians," he said.

The new rules, which take effect October 15, would also require a minimum down payment of 5 per cent on new government-backed mortgages and also call for "consistent" minimum credit-score requirements and loan-documentation standards. Under current rules, it is possible to take out a 40-year mortgage, which has been available on the market for less than two years, with zero down payment.

The regulations will apply to federal agencies such as the Canada Mortgage and Housing Corp., which has an estimated 60 per cent share of the mortgage insurance market. However, private-sector mortgage insurance rivals such as Genworth Financial, PMI Mortgage Insurance Co. Canada and AIG United Guaranty are free to offer the product. One difference is that the federal government will no longer provide insurance that protects lenders in the event of a default by the insurers.

The new regulations mean potentially higher sales and prices in the near-term as "buyers jump into the market before they are enforced," said TD Bank deputy chief economist Craig Alexander. "Then, the new rules will likely contribute to the cooling of the housing market."

According to analysts, the housing market would have slowed sooner if longer-term amortizations hadn't been introduced. The longer amortizations mean much greater interest costs over the life of the mortgage, but smaller monthly payments, which allows buyers to bid on a more expensive home than they otherwise could afford.

Source: Toronto Star

July 10, 2008 in Arranging Mortgage Financing | Permalink


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40 year mortgages were really unnecessary. 30 and 35 years are enough to help consumers with affordability and qualifying. As well, people should have some of their own money invested in homes they are buying as opposed to 100% financing. No need for a U.S. style mortgage mess in Canada.

Posted by: Darin | Jul 22, 2008 4:50:42 PM

The Government will move again to 30 year ammortizations and 10% down… Just wait and see.

Posted by: | Jul 11, 2008 3:55:18 AM

These big-guys dropped napalm on a three.
This last minute attempt at instant salvation is meaningless. CMHC decides to change the rules about two minutes before a total market collapse.
"Then, the new rules will likely contribute to the cooling of the housing market."said Craig Alexander.
What,Again cooling after Millers' new Tax?
Remember, we are still at record inventory levels.
Our real estate bubble needs to be pricked and the asset inflation let out. We’ve put far too many eggs in a single basket. And all our booms end badly.
Not going to happen here and this time it is different right?

Posted by: | Jul 11, 2008 12:45:15 AM

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