Mortgage Rules Miss the Mark by a Mile

The new mortgage rules are meant to reduce Canadian household debt*, but I think there are lots of other things that Flaherty could do that would actually be helpful in achieving this.

Mortgages changes effective March 18

• Shorten maximum amortization period to 30 years from 35 years
  
• Lower the maximum amount homeowners can borrow against the value of their homes t0 85% from 90%
  
• Withdraw insurance on home-equity lines of credit (effective April 18)

In many cases the purchase of a home could be the largest financial transaction a person makes in their lifetime. Although I believe that owning your own home shouldn't be considered an investment, there are financial benefits to building equity in a home.

Benefits to Equity in Your Home
The equity can be used to refinance and pay off credit cards and other debt that carries a much larger interest rate. That equity can also be used to provide capital for investing, such as purchasing investment properties,  or starting a business.

These new mortgage changes, in addition to last year's changes, make it even harder for people to buy a home. With the deadline looking for these changes it could actually encourage some people to recklessly rush into buying a home before the March deadline; perhaps a home that they can't afford or that isn't suited to their family and lifestyle.

Yellow Signs on Every Corner
I think there are many other things that the Canadian government should be focusing on. There has been changes to credit card regulations, but the glaring problem that isn't addressed is those yellow signs that are becoming like Tim Hortons or Starbucks with one on every corner. I'm talking about the payday loan stores.

Most people are living pay cheque to pay cheque. If an unforeseen event occurs requiring them to get an advance on their pay, these loan stores can (legally) charge up to 60% interest!

How is someone already living pay cheque to pay cheque going to survive on 60% less pay? They will be forced to go back to the loan centre before their next pay and it will start a vicious downward-spiraling cycle that they will never get out of.

What is the government doing to address this?

*Household debt was at 148 percent of disposable income in the third quarter last year according to Statistics Canada data.