Bank of Canada says goodbye to the 30yr Amortization
Say goodbye to the 30yr amortization. The Bank of Canada in a surprise announcement on Wednesday June 20th tightened its belt once again by axing the 30yr amortization and capping the amount of equity borrowed against a home at 80% (down 5%) in an effort to “cool” a heated Toronto Real Estate market. On the plus side, looks like our friend Mr. 2.99% is back for a visit.
It’s official, Canadians are still piling on debt, just at a slower rate. The latest numbers from Statistics Canada put the debt-to-disposable-income ratio at 152% as of the end of the first quarter this year. That’s up from 150.5% in the last quarter of 2011. However, borrowing growth actually slowed in Q1 to 0.9%. The increase in the debt-to-income ratio is the result of income growth which slowed even more and a decline in disposable income brought on by lower investment earnings and higher taxes. At the same time household net worth increased by 1.8% based largely on rising real estate prices.
So, even as the numbers move around, on the whole, the story remains the same and the federal government and the Bank of Canada continue to call household debt the number one domestic threat to the economy. The central bank’s latest semi-annual report says about 6% of Canadian households fall into the category of “most vulnerable” to financial changes — higher than the average for the past decade. And, by the reckoning of at least one analyst, the slowdown in indebtedness and the slowdown in the appreciation of property values has more to do with tighter mortgage rules than “a responsible attitude” by consumers.
Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Please remember to the Spring Realty Insider Club list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox. Find us on Facebook and Twitter too!