Canada is not immune to the global credit crunch housing meltdown experienced by its southerly neighbors; in fact the housing market crisis has prompted Canada’s finance minister to implement new mortgage rules. The rules are seen as a preventative measure. As of yet, the Canadian housing market has not experienced a bubble, but legislators do not want to see a repeat of the US housing fiasco.
Contrary to the rest of Canada’s economy, the housing market up North has proven incredibly buoyant. Home sales remain steady in part because of extremely low interest rates. While Finance Minister Jim Flaherty denied existence of a housing price bubble, the new measure will ensure no bubble will be had.
The new regulations actually tighten borrowing qualifications and limit how much equity can be drawn from a house. In Flaherty’s words, people have the tendency to “use their homes as an ATM machine.” The changes will take place on April 19.
The new regulations also insist on higher down payments when it comes to riskier loans. While the practice of risky, subprime loans was fortunately lost on Canada, the US’s own problems has become a mark of what not to do.
New Regulations Prevent Bubble
Homeowners will need the resources to qualify for a five-year fixed-rate mortgage. A minimum down-payment of 20 percent on insured mortgages bought for properties not intended as a residence is now required as well. Also, the maximum amount that homeowners who refinance can withdraw is down from 90 percent to 95 percent.
The changes in mortgage rules are aimed to prevent a housing bubble in Canada. They ensure that the housing market remains steady, stable and price points do not spiral out of control. This in turn, ensures that Canadians do not use their house to accrue easy cash, but rather save their money. Currently, approximately two-thirds of Canadians are homeowners.
Written by Lani Shadduck
HULIQ.com
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