Federal Finance Minister Jim Flaherty announced new mortgage rules today. Individuals wanting to refinance their homes are now limited to 85% of the homes appraised value down from 90%. Not too long ago Canadians wishing to borrow against their home could do so at 95% of the home’s value.
The policy change was made without a congressional vote. This amounts to a major policy change that will likely affect hundreds of thousands of families every year but did not have to go through parilament and a confidence vote.
According to popular opinion, mortgages are fundamentally a private contract between a bank and a client that should have only basic federal regulation. Canada has one of the most conservative and stringent banking systems in the world which takes on the least bad debt of any banking system in the world.
Opinion on the street yielded following commentary: “Last year the refinancing limit was dropped from 95% to 90 percent in Canada. This year it drops to 85%, where will it stop? If Flaherty is so concerned about household debt he should be doing something about our tax burden. Relieve some of our taxobligations and we won’t need to sell so much of our our souls to the banks for the basic necessities of life.
This is going way too far. After being caught up in last years reduction from 95% to 90% refinancing limitaiton, I have since being setting myself up to refinance to accomplish some very important issues at home based on a 90% mortgage. Now that is all gone at the whim of a self important politician who thinks he knows better about my family than do I! This is far more than the beginning of the end of Canada’s middle class.”
Politicians will argue that they are doing what is best for the people. They know that interest rates are poised to rise so are doing their job to stem the problems rising interest rates may cause. Should rates rise faster than expected, many Canadians may be forced from their homes.
But the other side of the coin is that the household debt that needs reducing first are the high interest credit cards and the loan shark high interest loans. Taking away the possibility to move high interest unsecured debt to low interest secured debt will just mean more money out of pocket for those already struggling with the aftermath of a global economic meltdown coupled with extremely high taxes.
Once again as the government makes housing less affordable for those in growing or recovering businesses and careers, there is no reduction in heavy handed taxes which would also be a way to put more money back in people’s pockets.
In any case, the new mortgage rules are here to stay, so no more refinancing above 85% of the home’s value and of course every new mortgage must qualify at the 5 year fixed rate.