My Blog

February 24, 2008

The difference between Canada and the U.S. is that as much as we want everyone to be able to own a home, in Canada we won't drop all the rules to get people into houses they can't afford. 

By laws in Canada, homebuyers who don't have a 20 percent down payment must get mortgage insurance from CMHC, Genworth Financial or another mortgage insurer.

This insurance actually covers the lender, not the homebuyer, but without it, lenders simply wouldn't lend, and lots of people--particularly first home buyers-- would be locked out of the market.

With the loans insured, there might be some potential for complacency on the part of lenders, but rules ensure strict limits on lending ratios.

For example, your total monthly housing costs (principal, interest, property taxes and heating, plus condo fees where applicable cannot exceed 32 per cent of your gross household income.  And total debt, housing costs, plus vehicle loans and other credits) cannot exceed 40 percent of gross household income. 

These two qualifiers ensure that homebuyers can't overbuy, as they did in the U.S., or that if mortgage rates rise, the homeowner is not so quickly and adversely affected.

Canada's economy does not always follow the U.S. and don't let those who would sensationalize the U.S. situation erode your confidence in the Canadian system.

Predictions for housing growth here in 2008 are still healthy.

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