Effective March 18th, new mortgage rules will apply. Apparently this move is to cull the surge in borrowing by Canadians. Unfortunately people have a very short term memory and the data show that we have not learned much from our southern neighbors. Here are the new rules:

1. Mortgage amortization periods will be reduced from 35 years to 30 years.
2. The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90% to 85% of the value of their homes.
3. The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

Its obvious, BOC wants to curb borrowing habits while maintaining historically low interest rates. If this is not done then whatever recovery Canada made over the past 2 years will be washed out if people continue to be irresponsible.

Bank of Canada’s earlier projection of a 3.5 % economic growth didn’t happen. Current adjustments are at 3% which made the financial gurus to keep the rate at its past rate of 1%. Next years growth forecast has also been adjusted to 2.% from 2.9%. Keeping the interest rate is a prudent decision which however will not be a long term solution if the market continues in its current trend. By far Canada is better off compared to most western countries hit with recession. But, with globalization comes global effects. The external factors specially the US economy will dictate or maneuver to a larger extent our economic future. Here is a very clear and straight forward article by Former TD Bank chief economist Don Drummond titled “5 big trends that will affect your finances“. He points at the high debt ratio, lack of pension planning, expensive education, compressed earning life and the cooling housing market as serious issues that need to be watched and addressed. I will quote his last point which has lot of substance: “Current economic and market conditions may continue to turn Canadians away from saving. After all, how appealing is it to save and invest when rates of return are likely to be modest? But Canadians are going to have to get used to this. The savings must be done. Now is the time to start.”