Canada's western provinces easing mortgage burdens

Canada's western provinces are coming to the rescue of homeowners and home buyers reeling under the burden of high interest rates.

With mortgages averaging about 17.5 percent, many homeowners were hard pressed to keep their homes. And for some, the possibility of owning a home was a distant dream.

One by one, however, the western provinces have come up with a tax-free mortgage subsidy or mortgage relief program to get homeowners ''over the hump.''

The trend started earlier this year, during a provincial general election campaign, when the Progressive Conservative Party in Saskatchewan promised and later delivered a precedent-setting mortgage subsidy program. Under the Saskatchewan plan, interest rates of 13.25 percent are guaranteed on new or existing mortgages of up to $50,000 for three years.

It wasn't long before other western provinces followed suit.

Manitoba offers new home buyers subsidized interest rates of 15 percent on mortgages, to a maximum of $64,000 for five years.

In Alberta, a subsidy will bring interest down to 12.5 percent for two years on new or existing mortgages of up to $60,000.

And British Columbia now provides 12 percent interest over three years on mortgages not exceeding $60,000. In British Columbia, however, the interest-free subsidy must be repaid in four years at market interest rates.

The price tag for the programs varies from province to province.

In Saskatchewan, it is estimated the cost could reach half a billion dollars. Manitoba's expenditure is expected to be about $50 million. Alberta, which is also reducing interest rates for farmers and small-business men to 14.5 percent, is earmarking a billion dollars for its interest-rate subsidy plan. British Columbia could provide between $860 million and $1.4 billion in financing over the life of its program.

For the most part, the western provinces are relying on revenues from their resource base to fund the programs.

Alberta, for instance, will take a billion dollars from investment income on its $11 billion Heritage Savings Trust Fund. (The Heritage Savings Trust Fund was set up in 1975 as a ''rainy day'' savings account to be used when Alberta's revenues from oil and gas sales start to decline.)

For an Alberta homeowner at the top end of the interest rate scale of 19.5 percent, the subsidy will be about $329 a month, or $7,896 over two years. For someone paying 17.5 percent interest, the subsidy will amount to $217 a month.

With three of the provincial governments in western Canada following a free-enterprise line, the mortgage subsidy programs seem to fly in the face of letting the marketplace have the final say.

But Alberta's premier, Peter Lougheed, said: ''As a free-enterprise government, we think the role of government is not to intervene, but these are very special circumstances. Our desired course was to change Canadian monetary policy and to pressure Ottawa to reduce high interest rates . . . reduce them instead of using interest rates to bolster the value of the Canadian dollar.''

Mr. Lougheed stresses that the Alberta program will run for only two years, and he, like other western premiers, is banking on interest rates taking a sharp drop in the next couple of years, thereby neutralizing the need for a continued mortgage subsidy program.

But meanwhile there may be some implications for the rest of Canada.

The chief economist for the Conference Board in Canada, Thomas Maxwell, believes it could be only a matter of time before Canada's so-called ''have not'' provinces start exerting some pressure on Ottawa to fund similar programs for their residents.

As Mr. Maxwell sees it: ''There is an outside chance interest rates will drop enough so you don't need to have the subsidy, (but) reasonable predications say they won't.'' He adds: ''This, then, says you have to start worrying about the equity (to the rest of the provinces).''

Clearly the source of any mortgage subsidy for the ''have not'' provinces will have to come from the federal government in Ottawa - a government already deeply in debt.

But, Maxwell thinks, ''. . . quite over and above the economics of it, there is a very strong political attraction in doing that, because it gets you a lot of political Brownie points.''

How Canada is helping its homeowners Tax-free mortage subsidies Province Interest rate Maximum Cost to offered (%) mortgage province Saskatch- 13.25 $50,000 $0.50 billion ewan Manitoba 15.00 $64,000 $0.05 billion Alberta 12.50 $60,000 $1.00 billion British 12.00 $60.000 $0.86-billion Columbia $1.40 billion