Key Interest Rate Holds, Mortgage Rules Tighten

Canadian banks and mortgage brokers are having mixed reactions to the latest mortgage rules introduced by Finance Minister Jim Flaherty.

The federal knuckle rap is a warning to Canadians to curb our appetites for borrowing more than we can afford.

On the heels of the announcement, the Bank of Canada left the key interest rate unchanged at one percent, but hinted that increases might be on the way.




New mortgage rules include:

  • A reduction in the maximum amortization period on mortgages to 30 years from 35 years
  • A lowering of the amount that Canadians can borrow in refinancing their mortgages to 85
    percent from 90 percent of the values of their homes
  • The elimination of government insurance backing of home equity lines of credit

In an interview with the Montreal Gazette, an economist with TD Canada Trust said that the new restrictions will affect about 20,000 of 450,000 real estate resales across the country. The rules will hit buyers in expensive real estate markets the hardest.

New borrowing restrictions take aim at the practice among home owners of borrowing from the equity in their homes to service debt, or sink further into it. The Canadian Association of Mortgage Professionals (CAAMP) offered mixed reaction to the announcement. It released a statement supporting government measures to help Canadians to preserve the equity in their homes and is pleased that no change was made to the purchase down payment requirement; however, CAAMP takes issue with the lowering of the amortization period to 30 years.

Bank of Canada leaves key interest rate alone – for now.

On January 18, the Bank of Canada announced that it will hold the overnight lending rate at one percent, but hinted that increases are on the way. While global economic instability continues, the bank indicated in its media statement that the pace of recovery is moving faster than anticipated.

The timing of Flaherty’s announcement fuels speculation that interest rate hikes are imminent. For Canadians managing oppressive debt loads, even an incremental rise in rates could be costly. 

The time is now to get a handle on your debt, while rates are favourable.

Important dates:

Next Bank of Canada rate announcement – March 1
Federal adjustments to mortgage guarantee framework – March 18
Withdrawal of government insurance backing on home equity lines of credit – April 18

Read the Department of Finance Canada news release

Use CENTUM Mortgage Calculators to analyze payments at current lending rates.
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