Mortgage rules change today, but about half Canadians don’t know it

TORONTO — New mortgage rules go into effect today in Canada but a recent survey suggests many people are unfamiliar with the changes.

Starting Monday, lenders can only issue home equity loans up to a maximum of 80% of a property’s value — down from 85%.

The maximum amortization period also drops to 25 years from 30 years — giving borrowers less time to repay the debt in full.

In addition, the federal government is capping the maximum debt ratios for households and limiting government insurance to mortgages on homes with a purchase price of less than $1-million.

A poll conducted by Pollara for Bank of Montreal found only about half of those surveyed were familiar with the changes brought in by the federal government last month.

And only 45% of those surveyed June 29 to July 4 were aware that the maximum amortization period has been shortened by five years.

The tightening, announced by Finance Minister Jim Flaherty June 21, was Ottawa’s latest attempt to slow down the accumulation of debt of Canadian households, which reached a record 152% of income in the fourth quarter of last year.

Central bank governor Mark Carney has been warning for several years that some Canadians are getting in over their heads with debt, and that they could face problems once interest rates — which sit at historic lows — start rising or if there is a second economic crisis.

Recently, the Bank of Canada estimated that the number of households in arrears could almost triple to 1.3% if the unemployment rate were to rise by 3%, about the same as occurred in the 2008-09 slump.

Flaherty has tightened mortgage insurance rules four times since 2008. Following each move, national average resale housing prices declined, only to regain the lost ground and continue climbing, according to data from the Canadian Real Estate Association. Canadian home prices increased 19% from the start of 2007 through April.

The new rules could also take the heat out of a Toronto real estate market where average prices have surged by a third to $516,787 from five years ago and there are more skyscrapers under construction than any city in North America.

Flaherty singled out Toronto — where the number of completed condo units next year will be double the five-year average — for its “continuous building, without restriction.”

“This concerns me because it’s distorting the market, quite frankly,” Flaherty told reporters when he announced the rule changes. “And for that reason we’re taking the steps that we have today.”

This time the measures are also expected to hit Canada’s economic growth.

TD Bank estimates that Ottawa’s move to reduce the maximum amortization period to 25 years from 30 will curtail economic growth by about 0.2 percentage points in 2013.