If you’re an American moving to Vancouver or any part of Canada for that matter, it will be quite an adjustment. With a working healthcare system, banking institutions that are actually respected, and of course hockey, among other things, some of these differences are going to be big, and others will be subtle, like how mortgages are handled.
Buying a home in Canada is still much of the same process as to what you’re used to in the US, but mortgages are not as whimsically thrown around to borrowers. Simply put, Canadians don’t subscribe to the “who cares” ideology followed by big-time American mortgage lenders.
The biggest deviation between the two county’s mortgages is that Canadian’s typically take a five-year fixed-rate closed mortgage, and American’s get a 30-year fixed-rate open mortgage. This means that many borrowers in Canada have the option to transfer their mortgage, which includes their oft-required mortgage insurance, should they sell their current property and buy a new one.
Essentially the mortgage is tied to the borrower instead of the property. This allows Canadians to finagle their financial scenario when the mortgage rate increases since the last time they obtained or renewed the mortgage. This luxury isn’t afforded to Americans. “This means Canadians can never count on having a particular loan interest rate last more than five years,” according to Fool, a finance advice website. “At the end of the loan’s life span, borrowers can refinance, but prepaying a loan early to take advantage of a drop in rates can cost mortgage customers dearly, as prepayment fees are quite hefty.”
The matter of insured mortgages may be new to an American. Nearly 50 percent of all Canadian mortgages are insured (it’s legally required when the loan is more than 80 percent of a home’s value), while conversely, only about 15 percent of American mortgages were insured prior to the real estate collapse in 2008. Typically the mortgage insurance is paid by the borrower and is either a fee tacked on with the mortgage payment, or an upfront stipend.
A small, but somewhat important difference is also that the mortgage interest in Canada isn’t tax deductible. But only about 30 percent of Americans with mortgages actually take advantage of the tax breaks from mortgages, most of which are disproportionately wealthy.
As Fool puts it, the massive difference in mortgage markets between the two countries is that the US openly supports home ownership, whereas Canada freely admits that it does not favor home ownership more than other types of housing, such as rentals and transitional housing.
“In the rest of the world, 30-year mortgages are uncommon. Most countries, outside the U.S. and Denmark, don’t offer them at all,” according to Fool. “Before the Great Depression, even U.S. borrowers generally took out short-term mortgages, which were paid off or refinanced when the term ended.”
As The Los Angeles Times reminds us, overall the Canadian mortgage system is superior to America’s. US mortgage lenders would love to destroy borrower-friendly 30-year fixed-rate mortgages, and also escape regulations that would prevent them from piling on to borrowers in so many other ways.
“They don’t want an improved system in the U.S., just one that’s better for them. Heads they win, tails we lose.”