. second, financial innovation also plays a role in driving housing demand and prices. most home buyers require financing, and therefore the mortgage market and its increasingly innovative products can affect when people purchase a house and the type of house they buy. in recent years, several new mortgage and mortgage - insurance products have been introduced in canada. these include the low ( or even zero ) down payment mortgage ; the longer - amortization mortgage ( that is, for an amortization period of longer than 25 years and up to 40 years ) ; and, to a small extent in canada, mortgages for non - prime borrowers. of course, innovations can increase a household's financial flexibility by allowing for reduced down payments and mortgage payments. and, because financial innovation often results in new means by which savings can be allocated to desired investments, it can also increase the efficiency of financial markets. but financial innovations can carry risks as well. for example, if financial innovations are introduced when demand is already strong, they can amplify a rising price trend, which, in turn, could result in higher mortgage rates overall. for the home buyer, of course, some innovations can increase the total cost of ownership – significantly in some cases – and can thus reduce lifetime savings or spending and investments in other areas of the economy. for example, a $ 200, 000 mortgage, serviced with monthly payments on a 40 - year mortgage at 5 per cent, will cost the homeowner about $ 110, 000 more in total than if the mortgage were for a 25 - year period [ chart : impact of amortization period on mortgage payments ]. although there are no publicly available statistics for amortization periods in canada, anecdotal evidence suggests that more than half of new, insured mortgages issued in canada over the past year were for extended amortization periods. while many people with longer amortization mortgages may choose to make accelerated payments, the potential effect of this shift in financing behaviour, when combined with low or zero down payment mortgages, can raise concerns, especially if there were also to be an easing of lending standards. furthermore, if financial innovations allow people to buy houses with very little " skin in the game, " they can, in a rising - price environment, encourage speculation in " quick flip " financial investment. this additional stimulus to demand can, in a market already characterized by tight supply and rising prices, boost house prices further, and increase the risk of a correction

##s from that midpoint, is meant to make it clear that we are not indifferent to the various outcomes in the target range. rather, we consistently aim to get back to 2 per cent over a horizon of 1 1 / 2 to 2 years. following such a practice means that the average inflation rate over successively longer periods of time will tend to be increasingly close to 2 per cent. until last year, the bank of canada used as its core measure of inflation the cpi excluding food, energy, and the effect of changes in indirect taxes. volatile food and energy prices tend to reverse themselves fairly quickly. therefore, since monetary policy actions affect inflation over a longer period, it would be inappropriate for monetary policy to try to offset the short - run movements in the total cpi caused by these fluctuations. among food components, however, only fruit and vegetable prices are highly volatile. and among energy components, electricity prices have not been particularly volatile in canada. thus, our new measure of core inflation excludes only the volatile components of food and energy, as well as the three other most volatile components of the cpi : tobacco prices, intercity transportation prices, and mortgage interest costs. as before, the effect of changes in indirect taxes on the remaining elements is also excluded. not only does the new measure of core inflation have a stronger statistical basis for its creation, it is historically a better predictor of future total cpi inflation than the old measure. overall, we expect that these refinements will help to further increase the predictability of inflation in canada in the years to come. this should add to the benefits that the canadian economy has experienced from having a credible anchor in the form of the inflation - control targets. see bank of canada ( 2001 ). this is shown in crawford ( 2001 ). macklem ( 2001 ) provides further details on the new measure of core inflation and its properties.