Canada’s new mortgage rules
The mortgage headlines here in Toronto and across the country have been dominated by the January 17th announcement by Finance Minister Jim Flaherty. The new mortgage rules will have bite, and will definitely affect the ability of young Canadians and marginalized borrowers to participate in the market.
It will be interesting to see how the changes will affect home prices. If prices and sales continue to surge forward in the bigger markets like Toronto and Vancouver despite the changes, then I think it would be safe to say that we are in the midst of an ugly real estate bubble. I would expect to see some slowing down.
HELOCs and budgeting
One of the changes announced is in regards to home equity lines of credit (HELOCs), a popular financing tool that has been targeted due to misuse by consumers. Flaherty’s announcement just underlines that the Canadian government won’t insure HELOCs in excess of 80% loan-to-value. When they were first introduced into the market, lenders used glossy photographs of couples in convertibles and boats to sell the product. The message was clear, encouraging borrowers to use their home as the proverbial “ATM machine.” The truth is that HELOCs, when managed properly, are a very important tool in managing household debt and finances. Given the opportunity and discipline, a HELOC is a great financing option.
I am having an ongoing conversation with a client who bought a house last year and contacted me concerned about his burgeoning consumer debt. He expressed that he could make the minimum monthly payments, but was having difficulty making any significant headway and asked for guidance. My advice was to start by tracking spending and creating a budget. It seems like a mundane and boring exercise, however once the habit is formed, the budgeting is very revealing. Oftentimes it is obvious where to find cashflow to pay down debt.
That wraps up The Mortgage Radar for this week. If you have any questions or would like to contact me to have me work with you on your mortgage, please don’t hesitate to get in touch. You can also book a call directly into my calendar below.
