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Did the mortgage rule changes aid consumers or are they still biting off more than they can chew?

June 6, 2011

Heather Wright from PropertyWire.ca (an online magazine) contacted us this week looking for a follow up comment to Finance Minister’s Jim Flaherty’s announcement to the changes to Canada’s mortgage rules. She was doing a follow up piece to see what impact if any the changes have had on Canadians looking to refinance their mortgage or purchase a home. I thought I would share with you the responses to some of her questions.

Do you think that the changes have impacted the marketplace materially?

I don’t believe that the changes have caused any slowdown because lenders were already qualifying clients for high ratio VARIABLE rates at higher fixed rates. Canadian banks are very conservative, and even prior to the new rules, banks made sure clients who were taking a variable rate would still have some “breathing room” based on rates increasing. Any client who couldn’t afford rate increases, most likely were not getting approved to begin with. As for HELOC products for high ratio mortgages – although the government may have approved this product; NO lender actually offered it, so the impact was zero. Refinancing from 90% to 85% has stopped some Canadians from refinancing as they may not be able to pull out enough equity to justify the premium but this is probably a good thing!

Are there other changes that need to happen to ensure that debt levels stay in check, and that Canadians don’t “bite off more than they can chew”?

Not from the mortgage side. The solution lies in other sectors of the financial services industry – I think it would be good if we could stop having credit card companies hand out cards at sporting events and college and university campuses, as if they were handing out free gum.

It is credit card and retail debt that hurts Canadians (NOT MORTGAGES). Although mortgage debt has been discussed quite a bit recently, the reality is that mortgage rates have been low for years and will remain low, whereas interest on credit cards can be as high as 24% annualized. With a mortgage, you have a debt on an appreciating asset, which is not a bad debt to have.

If you specific questions about the changes to mortgage rules implemented earlier this year, please give us a call.