Canadian Mortgages vs. US Mortgages: Is There a Difference?
Since the borders of Canada and the United States bind
us together as neighbors it has become increasingly popular over the years to
purchase either a secondary or vacation home in each of the countries respectively.
Many snowbirds enjoy the balmy temperatures of the southern states while many
Americans enjoy the snowy Canadian Rockies. So the question comes to mind, what
are the major differences in financing between these two nations?
--------------------------------------------------------------------------------
Generally it is a pleasant surprise for US applicants
to discover how simple and speedy the process of obtaining a mortgage loan can
be in Canada. Most mortgage applications can be approved within 24 hours, subject
to an appraisal, which may take an additional 24 to 48 hours depending on access
to the property. Furthermore, the cost of obtaining a mortgage in Canada is minimal
in comparison. There are no up-front application fees, brokerage fees or points
being charged, that is, unless there are unusual circumstances with either the
applicant or the property.
The vast majority of Canadian mortgages are based on
a 25 year amortization (which potentially represents the life of the mortgage).
However, the amortization is then broken into terms, which represents the period
of time a specific interest rate is guaranteed for. Canadian mortgage products
or terms vary from a minimum of 6 months to long term including 5, 7, and 10 years.
Most terms, especially the longer terms, are closed and can only be pre-paid or
re-negotiated with a penalty. Such a penalty can be significant and often unpredictable
since it is likely based on the interest lost by the lender for the remaining
period left in the term. Only after the agreed term has ended can the mortgage
be repaid or allow the borrower to shop for the best available going rate.
US mortgages offer the option to lock in for as long
as 30 years or even 40 years at a specified interest rate, and these mortgages
are fully open for repayment or renegotiation by the borrower at any time without
any penalty. However, the initial set up costs for obtaining either a new mortgage
or negotiating the rate on an existing mortgage can be significant. The brokerage
fees or points as they are often called are charged by either the mortgage broker
or the lender, depending on the origination of the application, and can be paid
upfront or converted into the interest rate charged on the mortgage.
Since all costs associated with obtaining a mortgage
including the interest charged can become tax deductible for the borrower, it
certainly becomes somewhat less of an issue compared to Canadians who do not share
the same tax advantage.
