Homeowners seeking a way out of high-interest debt will shoulder the biggest burden from the federal government's recently-announced steps to toughen up mortgage lending, according to a Prince George mortgage broker.
Among the changes announced Monday, Ottawa will lower the maximum amount Canadians can borrow when refinancing their home to 85 per cent from 90 per cent of the value of their home, which is a concern for Martin Krell of Dominion Lending Centre.
"They're not able to pull as much equity out in order to pay off high-interest credit cards," Krell said Tuesday, who added the announcement was made just two days before Dominion's president was to make a presentation to Finance Minister Jim Flaherty on the issue.
"As an industry, we see a refinance as being very beneficial, where they can take an 18-per-cent credit card, roll it into the house at four per cent or 3.89 and I've actually shown people how they can become completely debt free 10 to 12 years sooner by adjusting that debt," Krell said.
"By taking that away, Ottawa has limited the general public's access to equity in their homes."
It's especially concerning, said Krell, because a large number of American lenders like Wells Fargo and GMAC have withdrawn from the Canadian market over the last four years.
"These lenders lent money with five per cent, sometimes zero down," he said.
"These mortgages are coming up for renewal in the next one to two years and these people are orphans because they don't have a mortgage holder anymore.
"For these people to get a new mortgage, they need 15-per-cent equity to get a new mortgage so I'm finding more and more of these people are being forced into foreclosure or forced to sell their home because they don't have enough equity.
"To me that's the big issue - there are to be 30,000 orphaned mortgages in Canada over the next two years."
The move also left Commonwealth Financial principal Dan McLaren puzzled.
"I don't know how they would do this but if the government really wanted to control household debt they would try to limit the huge amount of unsecured debt out there," he said. "It's not uncommon for people to be walking around with $50,000 to $100,000 of unsecured debt by way of MBNA, Mastercard limits, stuff like that.
"To be honest with you, that scares me more than a mortgage with fixed rates and fixed terms over 30 years...I don't know if that was something that was really as well thought through as it should have been."
Another move, reducing the maximum amortization to 30 years from 35, will add $78 to the monthly payment for the buyers of a $224,000 home. B.C. Northern Real Estate Board director Joni Brown expects the biggest impact will be on first-time home buyers.
"It's always a trend we don't like to see but it's what's kept Canada out of hot water so I guess you have to respect some of the judgment they've made in the past," Brown said. "It's nice to see people work within their means."
Ottawa will also withdraw insurance backing on lines of credit secured by homes but Krell said most big banks don't insure their lines of credit and will go to only 80 per cent of the value of the house.
"I don't see that being a big issue," he said.
The changes come into effect on March 18.
