Federal Government changes to Mortgage Guidelines

It looks as though the federal government has decided to tighten Canadian mortgage guidelines once again. Here are the key changes: · Mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years. · Maximum amount Canadians can borrow against the value of their homes, lowered to 85% from 90% on a refinancing · Federal government backing for home equity lines of credit, or so-called HELOCs, is removed · Adjustments on amortization and refinancing limits coming into force on March 18 · Government backing on HELOCs will be removed as of April 18 Here is the related article taken from Sunday's Financial Post: The federal Conservative government is expected on Monday to introduce new rules aimed at toughening up mortgage lending in an effort to curb further growth in record household debt levels. The key change Finance Minister Jim Flaherty is likely to unveil is a cut in the maximum amortization period, to 30 years from 35 years. Mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. Government sources also told the National Post Mr. Flaherty is expected to lower the maximum amount Canadians can borrow against the value of their homes, to 85% from 90%, and remove federal government backing of home equity lines of credit, or so-called HELOCs. The sources, who spoke on condition of anonymity, add the minimum down payment, at 5%, will remain as is. Further, there will not unveil any plan to target condominium purchases by requiring monthly condo fees be added to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. The changes to the country's mortgage rules - the second in as many years - emerge amid rising concern about the record levels of household debt, which measured as a ratio of money owed to disposable income nears a startling 150% as of the third quarter of last year. That surpasses the level of debt held by American households, whose appetite for borrowing helped stoke the financial crisis of a few years ago. The Bank of Canada recently warned debt levels are growing faster than income, and the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a "significant change" in how consumers borrow and banks lend. Bank of Canada governor Mark Carney said policymakers have a "responsibility" to look at the benefits of pre-emptive action. Joining the chorus have been chief executives at the big banks, most notably Ed Clark at Toronto-Dominion Bank, in publicly advocating for tougher mortgage standards. Last Friday, Prime Minister Stephen Harper acknowledged his government was considering changes to the rules governing mortgages. He said the government "remains concerned about growth in the level of household debt and will look at taking prudent steps to moderate that growth. We will look at what steps may or may not necessary. In February of 2010, Mr. Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term, variable rate loan; reduced the amount Canadian can borrow against their home, to 90% of the property value from 95%; and require purchasers of rental properties to issue a 20% down payment as opposed to 5%. The moves played a role, observers say, in slowing down real estate activity. The new changes, though, reduce even further the amount people can borrow against their homes, to 85%. Also, the changes target HELOCs, which Mr. Flaherty cited as a source of concern in a recent interview. Home-equity lines of credit surged 170% over the past decade, or twice the rate of mortgage growth, and now represent 12% of overall household debt. With the new rules, Ottawa will no longer back the HELOC, as it was doing up until now through mortgage insurance. Instead, sources say, the government will signal that the banks are on the hook for any default linked to a HELOC it issued. The cut in the amortization period, or the time required to pay off the home loan, follows a 2008 move by Ottawa to stop insuring 40-year mortgages. While the federal government looks to curb borrowing, economists say the Bank of Canada may have to follow by raising its key interest rate sooner rather than later. The central bank issues its latest rate statement on Tuesday and it is expected to hold its benchmark rate at its present 1% level as signs indicate the economy may be benefiting from renewed business and consumer confidence in the United States. Stewart Hall, economist at HSBC Securities Canada, said the extraordinarily low-rate environment "provides all the incentive to consumers to borrow and spend and none of the incentive to save. You can try to [regulate] that away but that is apt to be fraught with significant frustration."

Economic forecast & rate increase July 2010

Calgary Mortgage Rates


Effective: July 20, 2010
Term Market Rate** Best Rate***
Adjustable Prime Prime - 0.60%
6 month 4.85% 3.95%
1 year 4.05% 2.54%
2 year 4.55% 3.20%
3 year 5.21% 3.60%
4 year 5.74% 4.09%
5 year 6.25% 3.99% Quick Close
4.19% Pre-approval
7 year 6.59% 5.00%
10 year 6.90% 5.20%
Prime 2.50%

Rate Increase from Bank of Canada!


Bank of Canada Increases Overnight Rate Target to 3/4 Per Cent

OTTAWA, July 20

The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the bank Prime rate is now 2.7 per cent.

Economic activity in Canada is unfolding largely as expected, led by government and consumer spending. Housing activity is declining markedly from high levels, consistent with the Bank's view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010. While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

The Bank expects the economic recovery in Canada to be more gradual than it had projected in its April. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada. The Bank now expects the economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April.

Reflecting all of these factors, the Bank has decided to raise the target for the overnight rate to 3/4 per cent. This decision leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.The next scheduled date for announcing the overnight rate target is Sept. 8