The OFSI (Office of the Superintendent of Financial Institutions – crazy-long name, eh?) is thinking about continuing to tighten the mortgage rules in this country. Last year the reduced the maximum amortization of insured mortgages from 30 to 25 years (which had previously been reduced from 40 to 35, then from 35 to 30). Now they’re considering lowering amortizations on uninsured (or “conventional”) mortgages (mortgage insurance is mandatory for mortgages with less than 20% down). Canada’s Finance Minster, Jim Flaherty, has been taking steps to curb the growth of consumer debt and inflated housing prices, and he’s using the mortgage-insurance rules as his tool of choice.
But should the OFSI really be intervening when it comes to conventional mortgages in which only the lenders (not the mortgage insurers) are taking the risk? There are many legitimate reasons for conventional mortgages to have extended amortizations (up to 35 years is common) – the oft-used reason being cash flow. With a longer amortization, payments are lower allowing those with more than 20% equity in their homes to spend or invest money elsewhere.
What do you think? Is the OFSI and Finance Minister Jim Flaherty being prudent, or have they already gone to far? Let me know what you think in the comments below.
