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Real Estate News: Canada eyes stricter rules for mortgages

February 11, 2010

With Canada’s hot real estate market getting hotter – should the government ensure that home buyers can afford their homes when the inevitable higher rates take hold?

Source: (Reuters)

The Canadian government is looking at tightening up rules for granting mortgages to make sure consumers don’t take on more debt than they can handle, the Globe and Mail newspaper reported on Thursday.

The report, which cited unnamed sources, said the principal proposal was to require banks to consider whether a person who takes out a variable-rate mortgage can continue to make payments if interest rates were to go up significantly.

The newspaper said there is a fear that many of the borrowers who are buying homes because of unusually low mortgage rates will struggle when rates rise, which could have a dampening effect on the broader economy.

As the housing market continues to heat up, some economists have warned of a possible housing bubble, fueled in part by the Bank of Canada’s pledge to keep its benchmark interest rate at rock bottom until mid-year.

Finance Minister Jim Flaherty said on the weekend there was no evidence yet that home buyers were taking on unsustainable levels of debt, but that he stood ready to tighten insurance rules for riskier mortgages if necessary.

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