US vs. Canada mortgages

[rh71]

My cousin works with mortgages in Alberta, Canada and she was telling me how they work and it surprises me how much different they are. We usually do the 15 or 30-year fixed rates here. The ARMs are seen as more risky. We also have PMI if you do less than 20% downpayment.

What they do there - as I understand it - is they loan for 5 years up to 30 years, but you have to renegotiate your rate every 5 years. Also, they DO charge pre-payment penalties... so you're basically locked into the payments for a minimum of those 5 years. People are usually only putting 5% down to start, with 450k mortgages. That sounds outrageous to me. She explained that it's mostly because they are "new money" and don't usually have a lot of savings but this is generally how everyone there works. They do have PMI but they don't see it as a "penalty". It seems their economy is doing really well up there, especially because of the oil industry. Jobs are plentiful and they get paid well. Calgary has endless construction of new homes. They are all 350k+ and there's no shortage of demand. You can't drive 2 blocks without seeing a construction vehicle driving alongside you.

Is it a matter of different economies thriving under different mortgage rules? Pros/cons compared to us?

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[mmntech]

The law in Canada now is you have to have a minimum 20% downpayment. This went into effect on July 1st. Low interest rates were fueling a housing bubble, which was (still is) pushing home prices to record highs. Basically if the rates go up, a lot of people wouldn't be able to afford their homes. So you'd get a US style collapse. So the law was changed to cool the market. So the new rules cap mortgages at 30 years and require 20% down. Previously you could get a home with as little as 5% with a 40 yr mortgage. Some major banks were more than eager to go less than 5%. At least Scotiabank was when I was asking about mortgages.

Housing prices are okay in much of the country. Overpriced buy okay. It's Ontario and BC that are of concern. The average house in Toronto is $500k while in BC it's pushing $1 million. It's so bad on the west coast that housing has become unaffordable for the middle class. Prices out there are being driven up by land speculators and wealthy foreign investors. In Toronto, prices are artificially high as land developers have dictated higher prices as the norm.

 

[RTGlauser]

Mortgages in Canada are still available up to 95%. The Bank Act here in Canada states that any financing above 80% LTV requires that the lending institution have mortgage insurance (my understanding of the American system tells me that mortgage insurance here would equate to Fannie Mae or Fannie Mac in the US).

CMHC (Canada Mortgage and Housing Corporation), Genworth and Canada Guaranty (the three mortgage insurance providers here in Canada) all require that pre-payment penalties
are all reduced to three months interest after the first years of any term longer than 3 years. Before three years the pre-payment penalty is generally three or IRD but can be whatever the particular institution wishes to charge (keeping in mind that we must stay competitive with the market to attract business).

The amortization is now limited to 25 years for any insured mortgage but was as high as 40 years a short while ago. The term can range from 1 to 10 years but generally speaking the most common term is five years at which point the rate is reset at whatever the prevailing rate is for the new term chosen. The new rate can be negotiated and the banks are usually pretty willing to offer whatever it takes to retain the customer.

We also offer annual pre-payment options such as 20/20 for an example. That means that the customer can prepay up to 20% of the original balance each year (usually, but not always on the anniversary date) and they can also increase their payment by 20% for the remainder of the term.

 

[iGas]

The law in Canada now is you have to have a minimum 20% downpayment. This went into effect on July 1st. Low interest rates were fueling a housing bubble, which was (still is) pushing home prices to record highs. Basically if the rates go up, a lot of people wouldn't be able to afford their homes. So you'd get a US style collapse. So the law was changed to cool the market. So the new rules cap mortgages at 30 years and require 20% down. Previously you could get a home with as little as 5% with a 40 yr mortgage. Some major banks were more than eager to go less than 5%. At least Scotiabank was when I was asking about mortgages.

Housing prices are okay in much of the country. Overpriced buy okay. It's Ontario and BC that are of concern. The average house in Toronto is $500k while in BC it's pushing $1 million. It's so bad on the west coast that housing has become unaffordable for the middle class. Prices out there are being driven up by land speculators and wealthy foreign investors. In Toronto, prices are artificially high as land developers have dictated higher prices as the norm.

I believe 20% down is for a second home/investment property, because CMHC will not insure the different on second home/investment.

Canada require 20% down to buy a house, with a minimum of 5% down for first home buyer (or anyone that hasn't own a house for 5 consecutive years) and the rest of the 15% must be insure by CMHC (high risk insurance. A poor man tax that is similar idea to an expensive second mortgage).

Canada housing market is in a slightly better position due to this CMHC insurance, and the due to the mining/oil/gas boom in the West.

 

[silverpig]

Other important differences:

1. There is no secondary market for mortgages - a bank cannot sell your mortgage to another bank.

2. There is no income tax deduction for mortgage interest.

 

[vi edit]

Do you guys have property taxes up there? If so...how much does that usually run a year? For example, I live in one of the higher taxed areas of the US and my 410k house has about $10,000 a year in property taxes that I pay that fund local schools, fire departments, libraries, police, roads, ect.

 

[Northern Lawn]

Do you guys have property taxes up there? If so...how much does that usually run a year? For example, I live in one of the higher taxed areas of the US and my 410k house has about $10,000 a year in property taxes that I pay that fund local schools, fire departments, libraries, police, roads, ect.

$700.

 

[Imp]

I'm not completely up to date on the mortgage stuff, but there is a housing bubble that has been brewing in Canada. Household debt is more than 150% of income on average, house prices are just stupid in major urban centers now thanks to cheap credit and engineered bidding wars.

It's so bad that the conservative/right-wing government who brought in 35 (or was it 40?) year and 5% down mortages over the past few years has backtracked. We're now back to 25 years and I think it's taken effect, but something big concerning this happens in October.

The hillarious thing is the 5% mortages and our version of Fannie/Freddie known as the CMHC. It's a government-backed mortgage insurance corporation that has had its insurance cap upped to about $600 billion over the past few years - ya know, to make houses more accessible to poor people. Thanks to this insurance, banks have been more than happy to dole out mortgages at 5% or less down - I've heard that banks have even leant out that 5%. And of that $600 billion, less than 25% (even less, I just can't remember the figure) is backed by assets? Also, due to recent changes, you can no longer get CMHC insurance for houses over $1 million...

I've probably screwed some of the facts up since they came off the top of my head, but the takeaway is that the whole "Canada averted the economic crisis, and its economy is great" is probably bullshit.

As for the oil/gas boom, they've been shutting/post-poning projects in Alberta (oil sand central) because of the price of gas. Current operations are fine and profitable, but growth is limited since a lot of that expansion depends on very high oil prices. It's something like $80/barrel to break even, and different operations need prices near $100/barrel. Crappier world economy = less gas used, and China's weakening growth is just bad news. And lastly, they can't get a single pipeline approved to ship more product (e.g. Asia pipeline through British Columbia, Texas/Gulf pipeline).

 

[iGas]

Do you guys have property taxes up there? If so...how much does that usually run a year? For example, I live in one of the higher taxed areas of the US and my 410k house has about $10,000 a year in property taxes that I pay that fund local schools, fire departments, libraries, police, roads, ect.

Property tax depends on the area, property size, and land usage.

The tax on my house was close to $7000 a year, but with deductions it was $3700 per annum.

 

[iGas]

I'm not completely up to date on the mortgage stuff, but there is a housing bubble that has been brewing in Canada. Household debt is more than 150% of income on average, house prices are just stupid in major urban centers now thanks to cheap credit and engineered bidding wars.

It's so bad that the conservative/right-wing government who brought in 35 (or was it 40?) year and 5% down mortages over the past few years has backtracked. We're now back to 25 years and 20% down and I think it's taken effect, but something big concerning this happens in October.

The hillarious thing is the 5% mortages and our version of Fannie/Freddie known as the CMHC. It's a government-backed mortgage insurance corporation that has had its insurance cap upped to about $600 billion over the past few years - ya know, to make houses more accessible to poor people. Thanks to this insurance, banks have been more than happy to dole out mortgages at 5% or less down - I've heard that banks have even leant out that 5%. And of that $600 billion, less than 25% (even less, I just can't remember the figure) is backed by assets? Also, due to recent changes, you can no longer get CMHC insurance for houses over $1 million...

I've probably screwed some of the facts up since they came off the top of my head, but the takeaway is that the whole "Canada averted the economic crisis, and its economy is great" is probably bullshit.

As for the oil/gas boom, they've been shutting/post-poning projects in Alberta (oil sand central) because of the price of gas. Current operations are fine and profitable, but growth is limited since a lot of that expansion depends on very high oil prices. It's something like $80/barrel to break even, and different operations need prices near $100/barrel. Crappier world economy = less gas used, and China's weakening growth is just bad news. And lastly, they can't get a single pipeline approved to ship more product (e.g. Asia pipeline through British Columbia, Texas/Gulf pipeline).

At one point it was 0% down with 40 years (came into play just after we purchased our house. We opted for 30 years instead of 35 years, we had 15% down and it was our first home). Banks was using cash back scheme of up to 5% of home value, essentially leaving CMHC taking all of the risk.

Some of the oil/gas projects has been put on hold since 2009, and at the moment there is no slow down in the industry till at least 2014/2015. Currently there are 2 gas plants and 2 aluminium plants expansions that is going on in Kitimat BC where the projects aren't going to complete till 2015 at the very earliest (2017-2018 is more likely). And, then there are oil/gas/potassium development that is going at neck breaking speed in Saskatchewan. And, some of the area/developers are doubling the wage just to get the project under way or to finish at the moment. Another development is that the federal government is letting American coming to Canada with out Red Seal certs and by pass work permits to work in Alberta/Saskatchewan (last I heard is that there are somewhere between 30,000-40,000 non cert American/foreigner currently working in AB/SK, because of the skill worker shortage). IMHO, there is no slow down in mining/oil/gas sector in the near foreseeable future in Canada as suggested by some of the people that are not involve in the sector.

 

[Imp]

At one point it was 0% down with 40 years (came into play just after we purchased our house. We opted for 30 years instead of 35 years, we had 15% down and it was our first home). Banks was using cash back scheme of up to 5% of home value, essentially leaving CMHC taking all of the risk.

I bothered to look up the CMHC stats. As of early 2010, they had about $10-$15 billion in assets to cover a few hundred billion in mortgages.

When I looked into getting a mortgage (buying with a sibling, ya, dumb, I know now) about 2 years ago, I think the CMHC insurance premium was $10k on a $500k property.

The new mortgage rules took effect in July, and the most recent stats for August showed a 10+% drop in sales year over year for Toronto and Vancouver. Condos took the biggest hit... House prices kept rising though. British Columbia has already started correcting. Canada lost 30k jobs (we have 1/8 the population of US of A to put into perspective) in July, and gained 30k jobs in August- the catch is that we lost 12k full-time jobs and most of those gains are part-time jobs. Canada's doing great?

 

[iGas]

I bothered to look up the CMHC stats. As of early 2010, they had about $10-$15 billion in assets to cover a few hundred billion in mortgages.

When I looked into getting a mortgage (buying with a sibling, ya, dumb, I know now) about 2 years ago, I think the CMHC insurance premium was $10k on a $500k property.

The new mortgage rules took effect in July, and the most recent stats for August showed a 10+% drop in sales year over year for Toronto and Vancouver. Condos took the biggest hit... House prices kept rising though. British Columbia has already started correcting. Canada lost 30k jobs (we have 1/8 the population of US of A to put into perspective) in July, and gained 30k jobs in August- the catch is that we lost 12k full-time jobs and most of those gains are part-time jobs. Canada's doing great?

I agree that Canada is not doing great, but we are not doing poorly as the American at moment. And, like you I think there will be a correction, but not as severe as the US or the mid 80s of 18-25% unemployment, where some city lost as much as 50% of their value.

 

[sdifox]

do you guys have property taxes up there? If so...how much does that usually run a year? For example, i live in one of the higher taxed areas of the us and my 410k house has about $10,000 a year in property taxes that i pay that fund local schools, fire departments, libraries, police, roads, ect.

0.905489% of the assessed value.

 

[Paperdoc]

Just as in the USA, there are some "boom" areas, and lots of areas with much slower economic growth, and hence much lower housing prices. Much of the province of Alberta has strong economic activity, mostly in exploration for and development of petroleum resources. In general, that is: extract the raw resource and sell it as fast as possible, most of it by export. Not enough of it is used to develop new domestic industries that produce advanced products. But the near-term result is lots of jobs that pay reasonably well. However, the cost of living in Alberta, especially for housing, is very high and that certainly impacts what is left over for discretionary spending. In much of rural Alberta where petroleum is not the economic base (agriculture more likely), housing costs and incomes are lower.

Similar situations apply in a few large cities, like Toronto, Ontario and Vancouver, B.C. Their economic bases are more diverse, and not so heavily dependent directly on raw resource extraction. However, people believe the jobs are there and hence want to move there, thus driving up housing prices. It is important to note, however, that most places outside the major cities do NOT have such high housing costs. Some posters have spoken of high costs in "BC", whereas the reality is the costs in a few large cites and suburbs in that province are wildly high, and the rest is much lower.

I live in Ontario. Although we often think that Torontonians believe they are the only people in this province, Ontario is huge compared to most states in the USA. Land Area of Ontario is nearly 1.5 times that of Texas. Driving distance from my city in North-Western Ontario to downtown Toronto is virtually the same as from Toronto to Miami, FL! And there's more Ontario north and west from where I live! Housing costs in Toronto and many cities close by are extremely high because people are willing to pay ridiculous prices in hopes of finding solid jobs there. Prices elsewhere in the province are much lower. A few times in my life I briefly considered moving to the southern Ontario area for a job. But the quick math said each time that, in order to pay for a house there compared to where I am, I'd need a salary twice what I was making here! Not going to happen, so I never moved.

Right now our mortgage is at 4.5% interest rate fixed for a 5-year term. When last we renewed, we had choices of 1-, 3- or 5-year fixed rate terms, or a variable rate that would change as the mortgage market moved. We judged that the rates were likely to rise slowly and the fixed 4.5% rate was our best bet at that time. Right now short-term fixed rates are a bit lower, but expected to rise: the 4-year fixed rate is what we are paying now, the 5-year fixed is 5.1%, and a 10-year fixed rate is 6.75%.

 

[ultimatebob]

0.905489% of the assessed value.

Geez... I'm paying about 5% of the assessed value of my condo now here in Connecticutistan 🙁

 

[KeithTalent]

Just as in the USA, there are some "boom" areas, and lots of areas with much slower economic growth, and hence much lower housing prices. Much of the province of Alberta has strong economic activity, mostly in exploration for and development of petroleum resources. In general, that is: extract the raw resource and sell it as fast as possible, most of it by export. Not enough of it is used to develop new domestic industries that produce advanced products. But the near-term result is lots of jobs that pay reasonably well. However, the cost of living in Alberta, especially for housing, is very high and that certainly impacts what is left over for discretionary spending. In much of rural Alberta where petroleum is not the economic base (agriculture more likely), housing costs and incomes are lower.

Similar situations apply in a few large cities, like Toronto, Ontario and Vancouver, B.C. Their economic bases are more diverse, and not so heavily dependent directly on raw resource extraction. However, people believe the jobs are there and hence want to move there, thus driving up housing prices. It is important to note, however, that most places outside the major cities do NOT have such high housing costs. Some posters have spoken of high costs in "BC", whereas the reality is the costs in a few large cites and suburbs in that province are wildly high, and the rest is much lower.

I live in Ontario. Although we often think that Torontonians believe they are the only people in this province, Ontario is huge compared to most states in the USA. Land Area of Ontario is nearly 1.5 times that of Texas. Driving distance from my city in North-Western Ontario to downtown Toronto is virtually the same as from Toronto to Miami, FL! And there's more Ontario north and west from where I live! Housing costs in Toronto and many cities close by are extremely high because people are willing to pay ridiculous prices in hopes of finding solid jobs there. Prices elsewhere in the province are much lower. A few times in my life I briefly considered moving to the southern Ontario area for a job. But the quick math said each time that, in order to pay for a house there compared to where I am, I'd need a salary twice what I was making here! Not going to happen, so I never moved.

Right now our mortgage is at 4.5% interest rate fixed for a 5-year term. When last we renewed, we had choices of 1-, 3- or 5-year fixed rate terms, or a variable rate that would change as the mortgage market moved. We judged that the rates were likely to rise slowly and the fixed 4.5% rate was our best bet at that time. Right now short-term fixed rates are a bit lower, but expected to rise: the 4-year fixed rate is what we are paying now, the 5-year fixed is 5.1%, and a 10-year fixed rate is 6.75%.

Yeah we are at 2.99% over five right now. It will definitely go up by the next go around.

KT