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Canada tightens housing borrowing rules

01-18-2011 08:22 BJT

OTTAWA, Jan. 17 (Xinhua) -- Canadians will find it tougher to use the equity in their homes to dig themselves deeper into debt, federal finance minister Jim Flaherty announced here Monday.

For several months, Canadian financial leaders have worried that Canadians are becoming far too indebted. Debt rates now hover at about 150 percent of disposable household incomes, making Canadians more indebted than Americans at the peak of their " housing bubble."

To try to rein in that level of debt, Flaherty announced he is changing the maximum length of most mortgages to 30 years from 35 years. Canadians will also no longer be able to get mortgage insurance for home equity loans and lines of credit.

"Most Canadians are quite careful and use common sense in their borrowing, but some are borrowing to the max at low interest rates. We know interest rates are going to go up over time," Flaherty told reporters at a press conference here Monday. "So we want to caution Canadians [that] we not facilitate excessive debt assumption by some Canadians at very low interest rates because that will lead to trouble in the medium and longer term.

Canadian mortgage default rates remain fairly low, at 0.4 percent.

"Canada's well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,"said Flaherty."The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future."

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