The Montreal Gazette, February 14, 2010

Re: "Housing prices are getting dangerously high" (Montreal Gazette, Feb. 12, 2010).

The spectre of higher interest rates in the future should have everyone concerned. It's a matter of when, not if - but that could be tempered by fixing a few problems with our system.

Right now buyers can pick up the keys to a new home owing almost exactly what they paid for the house (95 per cent of the house plus CMHC fees). If we couple this with 35-year amortizations, you can see we are helping people into houses in which they might not have any significant equity for 10 years.

We have an excellent plan that allows first-time purchasers to borrow up to $50,000 per couple from their RRSPs to put towards a down payment. If a couple hasn't been able to struggle a little to put the equivalent of at least 10 per cent of the purchase price into their RRSPs, why are we lending them money? If we simply go "old school" - 25-year amortization and minimum 10 per cent down - people will start building equity instead of paying interest, and housing market stability will be more realizable. If we don't, we are no smarter than the Americans, filling a few pockets with short-term gains and everyone else with long term pains.

John Deakin
Pointe Claire

It would seem that the Government of Canada is inclined to agree with John. On February 16, Finance Minister Jim Flaherty outlined new mortgage lending rules that will require borrowers to meet more stringent standards.

First, borrowers will be required to prove that they can support mortgage payments calculated using the five-year fixed rate with a 25-year amortization, even if they opt to sign up for a longer term or a lower variable rate.

Second, the rules will lower the maximum Canadians can withdraw when refinancing their properties, to 90 percent of the value of their home, instead of 95 percent.

Third, in order to curb speculation in the real estate industry, borrowers will now be required to put down a minimum of 20 percent on non-owner-occupied properties in order to qualify for CMHC mortgage insurance.

These new rules will come into effect on April 19.