The Federal Government has taken steps to help reduce the risk to Canadians from a U.S. style sub prime meltdown by announcing changes that will shorten the maximum amortization period from 40 years to 35 years and set the maximum percentage of your gross income to be spent on housing related fixed or essential payments at 45%.

In 2006, as home prices soared, insured mortgage terms were increased from 25 years to 40 which provided access to government backed insured financing for more potential home buyers.

The Finance department says reducing the amortization from 40 to 35 years on a $200,000 mortgage for example , with a 6% interest rate, would increase the borrowers payments by $41.00. The borrower would also save $49,000 in interest payments.

"todays announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong, and to reduce the risk of a U.S. style housing bubble developing in Canada," the finance department said in a statement

The new rules will also limit the amount of government backed insured mortgages to 95% and require a better credit rating in order to qualify. In addition mortgages that begin with interest only payments and home equity line of credits will not be covered.

These new rules will take effect Oct 15th but will not effect Mortgages already in effect.