Impact of New Canada Mortgage Rule on Small Businesses May Prove Devastating For the Economy

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With Everyone Talking About the Impact on Interest Rates and Home Buyers, Syndicate Mortgages Explains How the New Mortgage Policy Could Affect Small Business in Canada

The new stricter mortgage rules introduced by Mr. Jim Flaherty last week will soon be in effect all over Canada. The reviews and response regarding the new rules have been mixed and confusing. While half of the country, including the policymakers themselves, is hailing it as a winning attempt to prevent debt crisis, the rest have frowned upon its effect on homebuyers and the housing market in the long run.

Syndicate Mortgages (SMI), Canada’s reputed mortgage brokerage has already played its role as a part of the industry by presenting unbiased and expert analysis of possible outcomes and optimal solutions. Analyzing the matter in a broader prospective, SMI has attempted to divert attention towards the impact of new policies on small businesses in Canada.

According to the new rules, the maximum amortization period for government backed mortgages is shortened from 30 years to 25 years. Also, the maximum refinancing amount has also been lowered from 85 to 80 percent. Other changes include amendments in limits for Gross Debt Service ratio and Total Debt Service Ratio. On one hand, these changes will restrict the homebuyer’s ability to buy and refinance their home. On the other, they will create a difficult financial environment for small businesses.

Further explaining the possible effects of the new policy on the small business community, the spokesperson for Syndicate Mortgages said, “In order to focus more on the bigger picture, perhaps the policymakers seriously overlooked smaller aspects related to the housing industry and mortgages. It is not unusual for small business owners to borrow against the equity of their homes. The new rules will surely make it a difficult practice and small businesses would have to resort to higher interest debts.”

The spokesperson further implicated that the business under ‘business for self’ category will be the ones inflicted badly by the changing environment. Once the new rules are in effect, acquiring a mortgage would become difficult for owners of such businesses.

Another reason why the new policy may not prove to be in favor of the small business community is the fact that a large number of home renovation and remodeling businesses fall under this category. This industry greatly depends on refinancing and HELCOs. With the new rules in effect, the financial burden on these businesses may increase tremendously. “This is not one or two small industries we are talking about. Eventually, the trade and construction sector will also get affected in a negative manner. Once again, this will create a domino effect, which we fear might topple the economy in the long run,” adds the spokesperson.

The spokesperson may not be wrong in expressing fear regarding the devastating effect on the economy. Small businesses have been responsible for economic growth and employment in the country even during the global economic crisis. While the government is trying to cool down the housing market in order to avoid an economic crash, policymakers must make sure that the ability of small businesses to contribute to economic stability is not restricted due to these measures.

One helpful suggestion proposed by SMI to the government and policymakers is to focus more on restricting housing investors from overseas. According to the spokesperson, the reason behind the sudden and unconstrained housing boom is not due to Canadian homebuyers but largely because of overseas investors who buy and sell homes in Canada at unreasonable rates.
“The government seems to be tackling with one cause of the problem in a way that only fuels another. We once again suggest the policymakers to think of a broader and long term solution rather than further straining the rules that have shown no positive outcome for the past three consecutive years.”

About Syndicate Mortgages Inc.

Syndicate Mortgages Inc. is one of the leading Canadian mortgage brokerage firms. Founded in 2008 in Ontario, the company specializes in residential, commercial and construction financing across Canada. With years of experience and expertise in the mortgage industry, and access to an array of lending institutions across Canada, Syndicate is known for finding the best mortgage rates for their customers. Syndicate has ten branch locations across Canada. For contact, please use the following details.

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Marcus Arkan
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