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OTTAWA TIGHTENS MORTGAGE RULES TO AVOID BUBBLE

By
Real Estate Agent with RE/MAX Twin City Realty Inc., Brokerage

The mortgage industry is cracking down, in a move that could help protect against a U.S.-style housing bubble, but will also make it tougher to borrow money to buy a home.

The Finance Department said Wednesday it will stop backing mortgages with amortization periods longer than 35 years as of Oct. 15.

It will also start demanding a down payment equal to at least 5 per cent of the home's value, rather than guaranteeing mortgages where the buyer has borrowed the total amount.

Existing 40-year mortgages will be grandfathered.

Last year, 37 per cent of new mortgages were for terms of longer than 25 years, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Reaction from the industry was mixed.

"CMHC supports the new parameters ... . We also support their efforts to maintain the strong Canadian housing market," said spokesperson Stephanie Rubec, adding CMHC will stop insuring 40-year and zero down payment mortgages in October.

Others, however, say home buyers and banks have been prudent with their finances, and are being punished for the more lax approach south of the border.

What are your thoughts?