Canada’s federal government announced a further tightening of Canadian mortgage regulations effective July 9 in an effort to strengthen Canada’s housing market. The announcement by 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.”
Two key changes to Canadian mortgage regulations include:
1) The maximum amortization period is reduced to 25 years from 30 years.
2) The maximum amount of equity homeowners can take out of their homes in a refinancing is reduced to 80% from 85%.
These new Canadian mortgage regulations echo earlier reductions of amortization period and lowered refinancing maximums that came into effect last year.
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’s well known that housing is a key driver of the economy. According to CREA, resale housing will add an estimated $20 billion in spin-off spending and more than 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.
The changes make it all the more important for relocating employees to work closely with their local real estate professional to determine whether these changes are having an impact on the potential buyer pool in their market.
The Canadian real estate market remains balanced, and Canada continues to enjoy almost historically low interest rates. The dream of homeownership remains within reach for a great many 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 considering trading location for commute.
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