With the potential of a federal election being called in Canada this year the last thing many would expect a sitting government to do is make fiscal decisions that could possibly be unpopular. Politicians behave more like grandparents in an election year, sneaking candy to the kids to win favour.
However, Federal Finance minister Jim Flaherty is making sure we eat our vegetables this week by implementing more changes to Canadian mortgage rules that will be unpopular with some but should help to further ensure our overall financial stability, completely in contrast to the behavior patterns that started the United states spiraling down the rabbit hole for the past few years.
The changes made this week are not drastic by any means. After March 18th, Canadians will no longer be able to get 35 year terms for new mortgages where the buyer is putting up less than 25% of the purchase price as down-payment. 30 year terms will still be available. Those with existing or already pre-approved 35 year terms will be unaffected.
On a 300 thousand dollar home purchase the difference in monthly payments between a 30 and a 35 year mortgage works out to roughly 100 dollars per month. For those whom that difference is critical, it wont mean home or no home, it just means a more moderately priced home.
Will this effect the volume of sales across Canada? I don't think so, not to any great degree anyway. It might mean forgoing the house without the in ground pool or finished basement or perhaps no jacuzzi soaker tub this time around, but I doubt it will keep people out of the market altogether.
The federal Conservatives will also lower the maximum amount Canadians can borrow in refinancing their mortgages, to 85% per cent of the value of their homes from the current 90%. in the interest of keeping the future overall debt load of individual Canadian families within manageable range. These are preferable decisions, in my thinking, to raising the lending rates which historically has been the response of past governments during economically sensitive times.
Raising the interest rates would have a far greater negative impact on the overall resale real estate and new housing markets. Again, the fact that any tough love actions at all were taken this week assures me our our Government is putting its responsibility to Canadians ahead of its own political strategizing.