The new rules also impact upon homeowners who seem all too eager to cash out their equity to “buy boats and cars and big-screen TV’s,” Mr. Flaherty said as he announced that home equity loans will be capped at eighty-five percent of the home’s value, also on March 18. CMHC will discontinue its practice of insuring home equity loans and lines of credit a month later on April 18. Home equity lines of credit have grown by 170% in the last ten years, doubling the rate of growth seen in the mortgage market.
The moves were widely applauded by a number of bank leaders who have recently expressed concern about the rapid expansion of household debt and called upon the government to tighten lending rules. Frank Techar, president of commercial and personal banking for the Bank of Montreal called the actions “prudent, measured, responsible and timely.”
The Bank of Canada has been reluctant to raise interest rates from record low territory as the Canadian economy continues to perform sluggishly. Analysts at Scotia Capital suggest that tightening of lending rules is the more effective way of curbing debt without risking a further slowing of overall economic growth.
Predicting that the rule changes will moderate housing demand across the country, Flaherty announced that the minimum down payment required for a CMHC insured mortgage will remain at 5%. “We do not want to create any shock in the market or any sort of dramatic pressure. We want to be moderate,” Flaherty told reporters at the early morning briefing.
New mortgage rules could price some out of the market – Financial Post
Debt worries trump home sales – Globe and Mail
Buying a home about to get tougher – Financial Post
Flaherty details new mortgage rules– Globe and Mail
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