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Should Mortgage Rules be Even Tighter?

16 December, 2011 / by marketing

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It was almost a full year ago when Jim Flaherty announced that the amortization period on insured mortgages would be reduced to 30 years instead of 35, while at the same time the federal government put tighter restrictions on borrowing through HELOCs and home equity loans. All of this in an effort to reduce Canadians’ debt and get us back to where we were. It seems to be working. Canada has fared far better through the global recession than most other countries, and our housing market and other economic markets are up too. But, that shouldn’t stop us from going even farther, says Ed Clark, chief executive officer of Toronto-Dominion Bank. He recently sat down to talk to The Globe and Mail, and said during that meeting that mortgage rules should be even tighter.

Mr. Clark nods to the still-high levels of household debt and says to reduce it, federally insured mortgages should be reduced from 30 years to 25. When speaking to the newspaper he said, “If you thought the Canadian economy was strong enough to take another adjustment, then we would say take the 30 year amortization limit down to 25 and get this back to where it originally was.” However, even he doesn’t know if our economy could handle that, saying soon after that, “It’s hard to know whether the economy can take another crank like that. But my own gut would tell me that it may turn out that we do have the absorption capacity.”

But what if we aren’t able to absorb the cost of lower amortization periods? While our economy is good, Canadian consumer debt level is still very high, and just this week rose higher than numbers in the United States and Britain, showing that we might not want to be tightening a system that we’re already having trouble dealing with.

But we probably won’t have to worry about whether or not Canadians could handle it or not, as Mr. Clark doesn’t believe the government would actually make those changes to the rules, because of the housing market. “I think the government will pause here and not do any tweaks, because they’re hoping that the housing market is slowing down on its own but not collapsing and they don’t want to push it over and make it go down rapidly,” Mr. Clark said.

Regardless of whether they actually do or not, do you think mortgage rules should be made even tighter?”

          

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