Feds: Time to Back-Off Mortgages

piggy-bank-squeeze

Sometimes the Federal government knows what they’re doing, and then there are times like these.  In an effort to reduce overall debt loads they’ve been taking measures to curb borrowing.  This sounds fine on the surface, but they’ve been taking the path of least resistance and that’s to alter the rules of mortgage insurance.  The rules they rightly control because at the end of the day they’re insuring the mortgage.

Measures such as…

  • Lowering the amount you could borrow against your existing home from 95% of the value to most recently just 85%.
  • Eliminating the ability to have a Home Equity Line of Credit for more than 80% of the value of your home.
  • Setting an artificially high “qualification rate” for all variable rate mortgages
  • Reducing the maximum amortization from 40 years to most recently 30 years.

These are all effective measures at reducing the amount of mortgage debt Canadians take on.  The problem is, as most Canadians know, mortgage debt is good debt.  What about credit card debt?  Why was nothing done to reduce high rate terms loans at 19.9%?  Go ahead and max yourself out with an expensive car, just don’t invest in a nicer home for your family.  This is not the right message to send to consumers and certainly doesn’t put anyone in a better financial position.

Canadians who now find themselves in need of some extra cash to help pay tuition, care for a sick parent or survive a lower income drought must do it with their credit cards and lines of credit.  And if the interest costs are too high, the only relief is to sell the family home.  Bottom line is that the Feds have got the right idea, but the wrong plan.

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