Thu, 21st June, 2012 - Posted by
The federal government is moving again to tighten the rules on mortgage lending in Canada amid growing concerns that the housing market is overheated and household debt levels are climbing to perilous levels, according to the Globe and Mail.
As debt levels continue to reach record levels and the housing market has showed no signs of slowing down, the government is looking to tightening lending practices. With interest rates at record lows, they can only go up from here. This is the issue that scares the government. If home owners are at their debt limit now, what will happen to them once the interest rates rise?
Due to what is happening in the world economy, the Bank of Canada is expected to keep the interest rates low for some time. Tightening up the lending policy is the government’s measure to curb the increased household debt load while we are still enjoying these historic low interest rates.
The finance minister confirmed that the amortization will be reduced once again from 30 years to 25 years and the limit on borrowing equity will be reduced from 85% to 80%. Changing the amortization to 25 years will result in homeowners paying more in monthly payments but paying off their mortgage quicker.
This will mark the 4 tightening measure in the last 4 years. Recent figures from Statistics Canada show the average ratio of debt-to-disposable income climbed to 152 per cent, up from 150.6 per cent at the end of 2011.
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