TORONTO - First-time buyers and those who use their home as collateral for low-interest loans are likely to be most affected by new mortgage rules that go into effect in March, experts say.

Federal Finance Minister Jim Flaherty said Monday that beginning March 18, the maximum amortization period for a mortgage will drop to 30 years from 35, effectively reducing the maximum amount Canadians can borrow for their home.

Canadians will also be able to borrow less when they refinance mortgages and the government will stop insuring home equity lines of credit -- an alternative to credit cards and term loans that use the property's value as collateral.

Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals, said the changes to Canadian lending rules are more severe than his industry would have liked -- and could slow the housing market -- but aren't drastic enough to put the brakes on entirely.

"The government has a real balancing act between (rising debt levels) and maintaining the overall health of the real estate, housing and mortgage market in Canada," Murphy said.

"You don't want to do too much because that, coupled with rising rates, would have a dramatic impact on the real-estate market at a very bad time."

Consumer debt has become a growing concern for government officials and economists, especially after data emerged in the fall showing Canadian debt-to-disposable income ratios now hover around 148 per cent.

That means Canadians owe $1.48 for every dollar of disposable income -- what's left after mandatory government payments like taxes.

The situation has put Bank of Canada governor Mark Carney is somewhat of a bind; low interest rates are still required to prop up the Canadian economy, but they are also encouraging consumers to take on big loans.

The Bank of Canada is scheduled to make its next policy rate announcement Tuesday, but is not expected to raise rates because inflation seems under control and many economic uncertainties linger -- from a strong Canadian dollar to European debt.

A big part of the rising indebtedness is caused by homeowners using their house collateral to borrow for other purposes, including renovations, consumer goods, and repaying other kinds of debt.

The volume of home-equity loans as a share of overall household credit has risen by 170 per cent in the last decade, twice as fast as mortgage debt. That's a problem if home prices fall -- a scenario that some economists have been predicting as the housing market gears down.

Murphy said he is pleased that the government did not raise the required minimum downpayment from the current five per cent because that would have put a further chill on an already slowing housing market.

However, he added that his association had suggested that Ottawa tighten qualification standards for 35-year mortgages, rather than abolishing them altogether.

"There are a lot of Canadians who take out a longer amortization not because they are tight to qualify but because they want flexibility in terms of their finances ... they would qualify at a shorter amortization but they want options," he said.

Paula Roberts, a mortgage broker at Mortgage Intelligence, said the changes to refinancing and amortization could limit consumer choice for those who were responsibly benefiting from the options.

For example, a 35-year amortization gives homeowners the cushion necessary when rates rise because monthly payments are lower over a longer period of time.

Roberts said she encourages clients who take on the 35-year mortgage to make payments for a 30-year mortgage, but likes them to know they have a buffer if personal finances change.

The changes announced Monday mean that first-time home buyers, for example, will have a lower debt ceiling.

In addition, she said, the changes to refinancing limits could have the opposite of the intended effect and encourage those who are already in debt to borrow on credit cards or other lending options that have high interest rates rather than keeping more debt in a relatively low-cost mortgage.

"If a client is pulling out equity to purchase another property or to purchase investments and they're investing in their future and their wealth, then they're not going out and blowing it," Roberts said.

The new rules do not apply to those who secure those products before March 18, meaning the real estate market could see an upswing during the usually sleepy winter season ahead of the changes.

For those who enter the market after that, the changes will increase payments similar to an increase in mortgage rates, but mortgage holders will be paying more toward their principal payment rather than simply paying more interest.

For example, someone paying four per cent interest on a $300,000 mortgage would pay $104 more each month. However, instead of paying more to carry the mortgage, a shorter amortization actually saves $42,288 over the life of a mortgage, says Bank of Montreal senior economist Michael Gregory.

Gregory added that the changes also take some pressure off the central bank to raise interest rates.

"They don't have to resort to policy rate hikes as readily to address high and rising household debt burdens, which would have dampening impacts well beyond just the housing sector."

It's the third time in just over two years that the government has moved to tighten mortgage rules to curb consumer borrowing.

The maximum amortization was reduced in October 2008 from 40 years to 35 years, when the government also raised the minimum down payment from zero to five per cent.

Last February, Flaherty announced that mortgage holders who wanted to qualify for an insured mortgage had to meet the standards for a five-year fixed-rate mortgage even if the interest they paid was lower.

The maximum refinance allotment was also brought down from 95 per cent last spring.

Those rule changes, in combination with the anticipation of interest rate hikes and the implementation of the HST in B.C. and Ontario pushed real estate sales ahead into the first quarter of 2010.