The Canadian mortgage market has been very resilient through the global economic slowdown when compared to the US and Europe. Some of this has been due to the fact that the Canadian government and lenders have been fairly conservative in the financing options available to homebuyers.
A step towards more innovation in the market occurred with the introduction of the 40 year and 0% deposit mortgages, however, this change has been reeled back with the July 9th, 2008 announcement of new rules for government-backed mortgages by the Department of Finance:
* Fixing the maximum amortization period for new government-backed mortgages to 35 years;
* Requiring a minimum down payment of five per cent for new government-backed mortgages;
These new rules come into effect on October 15, 2008 and a few banks have already removed their 40 year and 0% deposit mortgage products from the market.
The effect of this is that the government has decided to stop insuring lenders through the Canadian Housing and Mortgage Corporation (CMHC) for these riskier loans, as they want to avoid a US style housing slump.
It will be interesting to see whether the private mortgage insurance companies decide to follow suit, or if they will keep insuring these high risk mortgages in order to take market share and have a possible advantage over the CMHC.
As a result of these changes, many people are predicting that potential home buyers who don’t have a 5% deposit or need the longer amortization period in order to afford a house in high price areas such as Toronto, Calgary and Vancouver will be rushing into the market to make their purchase before the October deadline.
If this is the case, it should be an exciting three months for lenders, mortgage brokers and home shoppers buyers and interesting to see how the housing and mortgage markets react once the dust settles.
