The government of Canada is worried about a real estate bubble. The reason for this is because there are a lot of people taking advantage of the low interest rates for their mortgage and first home. The record low interest rates are going to increase in June, and when that happens there may be some [...]

The government of Canada is worried about a real estate bubble. The reason for this is because there are a lot of people taking advantage of the low interest rates for their mortgage and first home. The record low interest rates are going to increase in June, and when that happens there may be some homeowners who can no longer afford their mortgage. If enough people cannot afford their homes anymore, there will be a foreclosure crisis and the collapse of the real estate market in Canada, no different than what has been seen in the United States for the past two years.

 To prevent this, the government of Canada is making it more difficult for individuals to get a home if they cannot afford it. The new policies are coming into place on April 19, 2010, with some major new rules coming in.

The new rules put in place by Finance Minister Jim Flaherty are:

 

  1. All borrowers must meet the standards to have a five-year fixed-rate mortgage, even if they are getting a shorter term mortgage with a lower interest rate.
  2. The maximum that a homeowner can withdraw when they are refinancing their mortgage will go down by five percent from 95 to 90 percent of the value of their home.
  3. A minimum of 20 percent down is required on all mortgages in order to qualify for government-backed mortgage insurance. This means on a $400,000 home, a down payment of $80,000 will be required.
  4. The number of years that a mortgage can run for will have a maximum of 35 years now, rather than 50 years like has been seen in past years.

 These rules are planned to protect the Canadian housing market from another bubble. With these rules, only the individuals who can afford a home will be able to get a home and there will no longer be people trying to take advantage of low interest rates but then finding they cannot afford the home anymore when the interest rates go up. The only problem is that it does not protect against a bad economy that causes people to lose their jobs. When someone loses their job, they end up going into foreclosure often, and that can create a housing crisis no different than if someone buys a home they cannot afford and is then foreclosed upon.

 Will this protect the housing market? Time will tell.


Posted: 2010-03-04 15:10:42

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