New mortgage rules take effect

Taken from the Guelph Mercury

GUELPH — Tighter federal mortgage rules intended to stem Canadian household debt kicked in Thursday, but local realty and mortgage specialists said the changes won’t have much impact.

Starting today, the maximum amortization period for a government-backed, insured mortgage drops from 35 to 30 years. It had been at 40 years in 2008.

Also, the maximum amount Canadians can borrow in refinancing their mortgages falls to 85 per cent of the value of their homes, from 95 per cent a little more than a year ago.

One month from today, the government will implement a third measure, eliminating guarantees on home equity lines of credit.

Federal Finance Minister Jim Flaherty announced the changes in January, one month after the debt-to-income ratio in this country reached an all-time high of 148 per cent. The rules are designed to discourage homeowners from dipping into home equity to pay for things such as cars, electronics or second homes.

This week, however, local mortgage and real estate specialists expressed doubt the new rules would impact the market.

“It’s really not going to make much of a difference,” Jennifer Lovsin, president of the Guelph and District Association of Realtors, said. “People are just going to go out and get debt anyway.”

If the government wants to get serious about curbing consumer debt, Lovsin added, it should stop credit card companies from lending at exorbitant interest rates.

While homebuyers will still have to qualify for a 25-year amortization, heavily indebted mortgagees who need help on a short-term basis will have less wiggle room, she said.

Chris Bisson, a broker with the Mortgage Centre in Guelph, said while the new amortization rule will only affect about five per cent of homebuyers, it won’t hurt, either.

“Generally the shorter the amortization, the faster people pay off their mortgages. Any time someone can pay off debt faster, it’s a good thing,” he said.

He also welcomed the refinancing rule, which he hopes will discourage people from “using their house as an ATM machine.”

Local real estate agent Don Huggins also welcomed the stricter mortgage rules, adding household debt “needs to be reined in.”

When he bought his own house, mortgage rates were at 14 per cent, he said. “Now, money is really, really cheap. Our interest rates are really low.”

But the new rules won’t have much impact on the local housing market, he said, which he predicted will remain hot due to a tight housing supply, and good weather.

To address the lack of financial discipline in this country, Huggins suggested the feds regulate lines of credit, another source of consumer debt.

Bisson agreed lines of credit are a problem, and also suggested the government scale back the maximum gross debt service ratio from its current ceiling of 44 per cent. “You’re setting people up to get into credit problems when you’re allowing them that extra amount,” he said.

Many predicted a buying frenzy ahead of the changes, as happened a year ago before Ottawa raised the minimum down payment on rental properties and Ontario and B.C. implemented the Harmonized Sales Tax.

However, after a strong start to the year, national home sales edged down in February, according to the Canadian Real Estate Association. “The reality is that we’ve had a good spring,” Bisson said. “But I don’t think it’s nearly as strong as it was last year as a result of the changes.”