Finance Minister Flaherty reduces mortgage terms from 30 to 25 years

Finance Minister Jim Flaherty announced today that the rules for CMHC (Central Mortgage and Housing Corporation) to allow a maximum of a 25 year amortization period rather than the present 30 year period. Refinancing loans will also be limited to only 80 per cent of the value of a home rather than the present 85 per cent.

These moves are meant to slow debt growth of Canadian households which had reached a record 152 per cent of income by the last quarter of 2011. The governor of the Canadian Central Bank Mark Carney has been lecturing for some time on the fact that Canadians were taking advantage of record low interest rates to place themselves in debt to an alarming level. While this move may slow down the real estate market slightly most analysts think that it was a good move even people in the real estate business. For more see this article.

Mark Carney: Excessive household debt could threaten economy

Mark Carney Bank of Canada governor said that if excessive household debt threatened the economy he would act. Ten per cent of Canadians could be unable to meet their mortgage payments if interest rates increased to more normal rates says Carney.

Carney remarked:"In exceptional circumstances, if there are issues that threaten financial stability, such as household debt ... the bank could use monetary policy for that purpose," Most economists think that the Bank of Canada will keep interest rates at one per cent for some time yet as the economic recovery remains fragile. However there were good job numbers for the month of March many times the predicted amount. Perhaps this indicates the economic recovery is being sustained. The interest rate at present is far below the inflation rate.

At present household debt is 150 per cent of income. Carney claims this is unsustainable. Carney said:"We have never been as indebted as we are today as individuals," If Carney does decide to raise interest rates this could cause problems for those barely able to pay their mortgages now. See this article for more.

Bank of Canada Governor: Europe situation will slow Canada's growth

  The governor of the Bank of Canada Mark Carney claims that the European debt crisis will slow both Canadian growth and global growth. Carney predicted that Canadian growth will be lower by approximately .6 per cent for the year. This will mean the Canadian GDP will be about 10 billion lower than otherwise.
    Carney decided that the Bank's key interest rate would remain at 1 per cent, a very low rate. As well he estimated that the debt crisis in Europe would lower the global growth rate by one per cent and growth in the U.S. economy by .8 per cent.
    As he has done earlier Carney warned about the high level of personal debt in Canada. This runs at about one hundred fifty per cent of personal income. Carney said:"High household debt levels in Canada could lead to a sharper-than-expected deceleration in household spending," "If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy."
     Many think that the bank will not raise interest rates this year as long as the economy is sluggish and inflation low. But some analysts think that by the middle of next year there will be some hikes in the rates. For more see this CBC article.