Canada Contemplating Stringent Mortgage Laws

As a latest move, the federal government in Canada is mulling over introducing new steps to tighten the mortgage benchmarks as well as thwart the prospective home buyers from taking more loan than they are able to pay for.

In a recent interview with the CTV, Canadian Finance Minister Jim Flaherty stated that he was concerned regarding people accumulating financial liabilities or loans despite the interest rates being quite small. Flaherty further said that subsequently such people get into trouble when interest rates go up, which is something unavoidable. The Finance Minister said that consequently the Conservative government in Ottawa was contemplating to hike the bare minimum down payment from the current five per cent to an 'elevated figure'. In addition, the government may lower the amortization period from an utmost period of 35 years to a 'lesser period', he added.

It may be mentioned here that the normal period for amortization was 25 years, but later, the lenders began to offer 30-year, 35-year and even 40-year mortgages to prospective home buyers with a view to encourage demand. However, sometime during the middle of 2008, the Finance Department initiated action to lower the maximum period for paying up mortgage loans to 35 years and also made it mandatory for a five per cent down payment for all mortgages that were insured by the federal government. A report released by the Scotiabank recently, estimated that despite the initiatives of the Department of Finance, as much as 18 per cent of all mortgages in Canada are for over 25-year tenure and at least 10 per cent of the mortgages were amortized for longer than 35 or 40 years.

Meanwhile, the Canadian Real Estate Association reported recently that during November this year, the mean price of a resale residential real estate in Canada touched the $337,231 mark, which was around 19 per cent above the price during the economic depression in the previous year.

Many in Canada say that the Finance Minister Jim Flaherty's recent remarks during his interview with CTV was simply an echo of what the governor of the Bank of Canada, Mark Carney, had said sometime earlier. In fact, a week before Flaherty's interview, Carney had advised the consumers to sort out their financial problems in order to get ready for the situation when the central bank would unavoidably increase it fundamental policy on the interest rates from the prevailing 0.25 per cent, which is considered to be abysmally low owing to a crisis financial situation.

Advance cautiously: CIBC

Reports of the Canadian federal government's possibility to initiate further actions in the scorching real estate marker kept people who have been observing the housing market scenario bustling recently. In an interview to The Lang and O'Leary Exchange of the CBC's, Canadian Imperial Bank of Commerce (CIBC) economist Benjamin Tal, it is possible that the government could on the whole close down 25 per cent of the real estate market in Canada. He was of the opinion that Ottawa's moves would be important as numerous people took huge amounts of loans taking advantage of the record low interest rates.

According to Benjamin Tal, the statements of the Bank of Canada as well as the Department of Finance denote that people are misusing the low rates. He, however, cautioned the authorities to be careful and not risk the frail economic recovery.

While Benjamin Tal acknowledged that adopting further vigilance while lending would certainly be sensible, he believed that Ottawa ought to be guarded for any eventuality, such as a sweeping hard cap of amortizations for 30 years or the least amount of down payments of 10 per cent. The CIBC economist suggested that if the federal government really wants to initiate any step, it should be done in a steady manner so that it does not harm the housing industry. According to him, the timing is really complicated, as only the housing industry is doing somewhat well in the present market conditions.

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