The federal government is moving once again to tighten mortgage-lending rules amid lingering concerns about an overheated housing market and rising household debt levels.

In a move being discussed over the past few months Finance Minister Jim Flaherty announced the federal government is reducing the maximum amortization period for a government-insured mortgage to 25 years from 30 years.

Here is what some of the changes discussed will look like:

• Banks will still be allowed to offer 30-year amortization periods on low-ratio mortgages that include a down payment of 20 per cent or more
• The changes will see the government lower the maximum Canadians can borrow against their home to 80 per cent of its value, from 85 per cent, in an effort to encourage them to keep more equity in their homes.
• As well, under the new rules, to qualify for a mortgage loan Canadians can spend a maximum of 39 per cent of their gross household income on home expenses such as mortgage, property taxes and heating, and a maximum 44 per cent of income on housing expenses and all other debt.
• Ottawa will limit government-backed insured mortgages to home purchases of less than $1 million.
• A down payment of at least 20 per cent will be required on mortgage loans for homes priced at or above $1 million

Here are some snippets from various reports about the changes and the reasoning behind it.

Reducing the amortization period will increase monthly payments, but reduce the amount of total interest paid on a mortgage. Ottawa expects the change from a 30-year to 25-year amortization will, on a $350,000 mortgage loan at four per cent, increase the monthly payment $177 but reduce total interest costs by nearly $47,000.

The government believes less than five per cent of home buyers will be affected by the clampdown.

The new rules take effect July 9, 2012.

“We watch carefully, we monitor the market carefully. I remain concerned about parts of the Canadian residential real estate market, particularly in Toronto, but not only in Toronto, so that is why we are intervening once again,” Flaherty told reporters in Ottawa.

“It’s our job to try to be ahead of things and act in a measured way, listening to the market. And I have been listening to the market, and quite frankly, I don’t like what I hear, particularly in the condo market.”

Flaherty said the government’s moves are part of an effort to “moderate behaviour” among Canadian homeowners and make them reflect before jumping into the housing market at the high end.

Canada’s largest city is seeing continuous home building because of persistent demand, he noted, which is accelerating prices and eroding affordability.

“This concerns me because it’s distorting the market, quite frankly,” the minister added. “My judgment is that we need to calm particularly the condo market in a few Canadian cities.”