Canada tightens mortgage rules

Associated Press

TORONTO

Canada is tightening mortgage rules over concerns Canadians are taking on too much debt, the country’s finance minister announced Monday.

Finance Minister Jim Flaherty said the maximum amortization period for government-insured mortgages will be shortened to 30 years from 35 years. Ottawa also is lowering the limit on how much money Canadians can borrow using their homes as equity to 85 percent of the value, from 90 percent.

The new rules go into effect March 18.

Flaherty said some Canadians are “borrowing to the max at low interest rates.” Canada’s central bank and the government have been urging Canadians for months to be wary of taking on too much debt.

Household debt was a record 148 percent of disposable income in the third quarter last year, exceeding the U.S. level of 147 percent. The government wants to ensure there is no mortgage meltdown in Canada when rates go up.

“We do not want to facilitate excessive debt assumption by some Canadians at very low interest rates because that will lead to trouble in the medium and longer term,” Flaherty said.

Flaherty said he consulted with the top executives of Canada’s major banks. In Canada’s concentrated banking system, five major banks dominate the market, and regulators know each of the top bank executives personally.

Unlike elsewhere, there was no mortgage meltdown or subprime crisis in Canada. Canadian banks are stable because, in part, they’re more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so.