Photo by woodleywonderworks

The Canadian government, like practically all first-world governments, has for some time now been trying to implement measures to protect its citizens from debt. More drastic measures have not yet been considered, but one such option could include raising the payment minimums on a home up to 10 per cent from the 5 per cent limit currently enforced.

The first line of defence to protect the banking system would be provided by the government-backed Canada Mortgage and Housing Corporation (CMHC). If you look at this arrangement, you can see that taxpayers have the right to be worried. With your down payment for a new home lower than 20 per cent, you will be bound to pay CMHC insurance. This will take the risk off banks and mortgage companies in case of the default risk, since costs will be covered by CMHC.

This is one of the problems the risk presents. Many banks would prefer to offer a 5 per cent down payment instead of a 25 per cent down payment because they are actually insured only for the 5 per cent down payment mortgage, and not for the 25 per cent one. This encourages buyers who are not actually able to afford home ownership to take on a mortgage.

Perhaps we should include this change with the other regulatory changes that are about to be introduced. The change of amortization rates from 35 years to 30 years and the allowance of refinancing to 85 per cent debt levels from 90 per cent could be accompanied by a raise in the minimum down payment backed by CMHC to 10 per cent. This could, however, have a negative effect on first-time home buyers and, consequently, on the entire real-estate market.