Government Mortgage Regulation Change Observations

As has been mentioned in numerous media outlets the past week, the federal government has made the decision to further tighten the regulations regarding mortgage lending on high ratio mortgages. The changes are due to take effect on March 18th.

The main changes are:

1. The government has removed support for financing of HELOC high ratio mortgages.
2. Reducing the maximum refinance ratio to 85 percent loan to value from 90%.
3. Reducing the maximum amortization from 35 years to 30 years.

What does this mean for homeowners and homebuyers? First of all, it is going to be harder to tap into the full equity of your home. This means that refinances to consolidate debt will be more difficult, and some of the refinances that could help homeowners in the past will not be possible now. Secondly, the idea of leveraging equity for the purpose of starting a new business or expanding a current one will be stunted. This will make it harder for small business to thrive and potentially have negative consequences on the economy.

Finally, the banks will see much greater profits due to less people paying out unsecured debt such as credit cards and lines of credit. Then, bankruptcies will increase due to people not being able to pay their debts. If that is what the government had in mind when they talked about making these changes to help control personal debt levels, I suppose this is one way to go about it.

Third, those who had aspirations of home ownership and were barely getting into the market currently will not be able to. This will probably result in a short term adjustment in home prices through the spring and early summer. Further, it will mean more people will continue to remain in rental housing for the foreseeable future.

For a government supposedly so committed to “helping” Canadians control debt levels, they have not been doing such a good job running the country’s finances themselves. Further, they have not made any such announcements to further regulate unsecured lending.

In my opinion, these changes are about making bankers, big business and wealthy property investors wealthier and keeping poorer and middle class Canadians down.

If you see soon the need to refinance your mortgage, or if you are on the edge of qualifying to purchase a home, now would be a good time to get it done. Contact me below and I will be in touch and we can get started.