TORONTO (Reuters) - Bank of Montreal (BMO.TO) said on Friday that it will stop offering 40-year mortgages, making it one of the first of Canada’s big banks to act on planned changes to federal mortgage-insurance rules.
BMO, Canada’s fourth largest bank, said that effective immediately it will cut the maximum amortization period to 35 years, and said borrowers must have at least 5 percent of the home purchase price as a downpayment.
The bank said it will still process applications that were already submitted for longer amortization periods or lower downpayments.
Analysts said this week that the federal government’s moderate moves to rein in some mortgage lending would not have a significant impact on Canada’s housing sector, where activity is already slowing.
New home prices in May, for example, rose 4.1 percent from a year earlier, down from 5.2 percent annual growth in April, Statistics Canada said on Friday.
And June housing starts fell 4.3 percent to an annualized rate of 217,800, data showed earlier this week. Economists expect that rate to decline even further.
Canada’s Finance Department announced plans to tighten conditions on some government-backed mortgages on Wednesday, saying it wanted to avoid the sort of housing meltdown that has damaged the U.S. economy.
Among other changes, it said it will drop the maximum amortization period for new government-backed mortgages to 35 years from 40 years, and will require buyers to have a minimum down payment of 5 percent, instead of zero.
The government said the measures would take effect on October 15.
The volume of residential mortgage credit outstanding is forecast to grow by 11 percent to C$913 billion ($905 billion) in 2008, according to the Canadian Association of Accredited Mortgage Professionals.
Reporting by Lynne Olver; editing by Rob Wilson