Ottawa- Finance Minister Jim Flaherty has unveiled three new rules aimed at reducing Canadians' soaring household debt.
· Mortgage amortization periods will be reduced to 30 years from 35 years. – Effective March 18, 2011
· The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from 90 per cent – Effective March 18, 2011
· The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit – Effective April 18, 2011.
The rules are aimed at encouraging responsible lending and borrowing and encouraging people to increase their home equity.
"Our measures will help improve the financial situation of households in Canada," Flaherty said.
"While interest rates are currently low by historical standards, eventually they will rise. Canadians should — and for the most part do — understand this when taking on significant debt such as the purchase of a new home."
The minister said the measures are aimed at protecting "the stability of the economy by ensuring lenders' practices are sustainable." He said that will increase the security and stability of home ownership.
"This will also increase the savings of Canadian families — savings of tens of thousands of dollars over the life of a mortgage, savings that go back in the pockets of hardworking families, where they belong."
The new rules come on the heels of a Bank of Canada announcement that Canadians' domestic debt burdens have hit record levels.
The ratio of household debt to disposable income has reached 147 per cent and household debt has reached $1.4 trillion.
The International Monetary Fund has called household debt the No. 1 risk to the Canadian economy.
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