- Aug 20, 2000
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CMHC pulls plug on zero-down mortgage
I see these measures as being good optically in front of the press, but not really having much impact on the problem. The difference between a 35 year amortization period versus a 40 year one isn't going to be much. The zero money down ban might be more useful, though.
The federal government has cracked down on the mortgage industry with new rules that will make it more difficult for consumers to borrow. But many market observers think it is too little too late.
One of the key measures is a requirement that all mortgages have at least a 5% down payment. Competition in the mortgage industry has allowed consumers to put zero money down on a home and still get a competitive rate.
The government's other key measure is to introduce a stipulation that insured mortgage products have an amortization period of no longer than 35 years. In the past two years, the amortization period has stretched from 25 years to as much as 40, with some people suggesting a 50-year amortization was next.
Any consumer with less than a 20% down payment on a home is required to get mortgage insurance if they are borrowing money from a financial institution covered by the Bank Act. The new rules affect those mortgages.
The government will also require anybody with an insured mortgage product to have a minimum credit score.
The new rules will also require new loan documentation standards.
Ottawa insisted the housing market is in fine shape and noted the number of mortgages in arrears is stable at 0.27%, near the lowest levels experienced since 1990.
But the government does have some concerns about the market getting overheated. It was two years ago that former Bank of Canada governor David Dodge complained that interest-only mortgages were adding too much fuel to the housing market. At the time, he demanded a meeting with Canada Mortgage and Housing Corp to discuss the issue.
I see these measures as being good optically in front of the press, but not really having much impact on the problem. The difference between a 35 year amortization period versus a 40 year one isn't going to be much. The zero money down ban might be more useful, though.