Tough rules to address Canada’s housing boom

The Federal government’s latest decision to introduce strict mortgage rules comes in the wake of its increased concern about the crisis awaiting several Canadians opting for variable rate of mortgages. They will find it difficult to cope up with making their payments every month when the interest rates soar, quoted the Globe and Mail news publication.

NEW RULES WILL ----

1. Authorize banks to approve/disapprove mortgages—
New rules to be announced by Jim Flaherty, the Canadian Finance Minister, will help the banks take appropriate decision whether to 
approve any particular mortgage or not and will also require increased down payments from some of the borrowers. 

2. Ensure safety for the borrower—
The sole aim of latest rules is to introduce safety into mortgage evaluations by the banks so that the borrower can easily pay the monthly down payments even when the rate of interest goes up. Also, the rules want to avoid a housing crisis in Canada if and when interest rates rise.

Due to low interest rates, house prices and re-sales in Canada will touch new highs, reported the Canadian Real Estate Association last week. Canadian home prices have already increased 0.4 percent in December 2009 as compared to November 2009, the figures from Canadian government revealed.

Proposals include—
Ottawa is getting recommendations to------ 
• Either increase the monthly down payment (which is currently five percent)
• Or to place a limit to mortgages to a period of 30 years (which is currently 35 years). 

The Bank of Canada has warned that nearly one in 10 households will have a debt-service ratio putting them at a risk of economic shocks by 2012.

In the year 2008, Canada’s Department of Finance had talked of limiting the amortizations for government-insured mortgages to a maximum of 35 years and also provide mortgage insurance on 95 percent of the total value of the loan.

The housing bubble in Canada has been created by the policies of the Federal Government and it needs to be corrected by the policies of the government.