On January 17th, Finance Minister Jim Flaherty announced adjustments to the rules for government-backed insured mortgages that will come into force March 18th, 2011.

The new measures will:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value (LTV) ratios greater than 80%
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85% from 90% of the value of their homes

Additionally, on April 18th, 2011, the government will withdraw its insurance backing on lines of credit secured by homes, such as home equity lines of credit (HELOCs).

By paring back the maximum amortization from 35 years to 30, qualification will become harder for some borrowers – particularly first-time homeowners – as mortgage payments will increase. It’s hard to imagine that, not so long ago, Canadians could amortize their mortgages up to 40 years with zero down payment mortgages.

This is the second time in less than a year that the refinancing maximum was reduced –

meaning Canadians can access less of their home equity. The first reduction from 95% of the value of your home to 90% came into force in April 2010. Now, as of March 18th, 2011, the second reduction will bring maximum refinance levels down to 85%.

This change will mean that fewer borrowers can consolidate high-interest debt such as credit cards and other unsecured loans into their mortgage at today’s low rates. This may force homeowners who are experiencing job loss, illness, separation, divorce or urgent unforeseen family crisis into having to sell their homes to gain access to their very own equity.

With these two reductions in the maximum refinance amount (totalling 10%) in less than a year, on a $300,000 home, that’s a difference of $30,000 homeowners can no longer access.

With interest rates sitting at all-time lows – with nowhere to go but up – and looming mortgage rule changes, now is the perfect time to act to refinance your mortgage to pay off bills or free up more cash flow, or purchase a new home.

Now more than ever it’s important for Canadians to practice financial responsibility, as options for reducing high-interest debt payments are increasingly being limited.

As always, if you have questions about refinancing or other mortgage-related questions, I’m here to help!

In light of the New Year, historically low interest rates and new mortgage rules coming into force next month, there has never been a better time to examine your current debt load to see how you can save more and spend less.

Following are some steps you can take to help trim your debt in 2011:

such as entertainment for instance, set aside a reasonable amount each month and prepare to stop spending money in this area once your budget has been exhausted.

2. Create or review your financial plan. Once you have created your budget, you can now develop a financial plan that maps out short- and long-term goals as well as emphasizes debt management. With a solid financial plan, you are less likely to leap before you look and make financial or investment decisions you’ll regret in the long run.

3. Pay off high-interest debt. Now that you’ve created your budget and financial plan, it’s time to direct those savings where they’ll do the most good in reducing your worst types of debt. While it’s a smart move to pay off your mortgage quickly, attacking high-interest debt such as credit cards and other unsecured loans should be your top priority – credit card interest rates can be in the high 20% range, while mortgage rates are currently around 4% and below. So if you have some equity built up in your home, it may be a wise idea to consolidate your high-interest debt into your mortgage. This will enable you to ease into 2011 with a clean slate. But it’s important to avoid racking up more high-interest debt once you’ve refinanced – to prevent a repeat of the debt worry cycle.

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