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Originally Posted by Canada 02
Can someone help me understand the difference between Canadian and American banks and the mortgages offered. Down here, the only mortgages offered by my bank are 10, 15, 20 and 30 years, with rates ranging from 2.5 to 3.5%.
How would a short term (less than 10 years) mortgage work in Canada? I assume the amortization is longer than the term, correct? Do you re-new when the term is up, but keep the same amortization period?
Some banks down here offer adjustable rate mortgages, or ARMs, that are short term (3 to 7 years), were the rate is adjusted every 12 months or so based on some common index like 1 year treasury or LIBOR. The adjusted rate is also capped so it can only go up or down a maximum amount.
Are Canadian mortgages the equivalent of ARMs?
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In the US it is surprising that with the rates so low and the incentive that you can lower your taxes by having a mortgage why things aren't gaining more traction. Both countries hit yields today that are all-time lows after the US Job numbers and the Canadian GDP. I think the Bank of Canada could cut rates by December of this year and it seems to be pricing this in. For variables in Canada it is somewhat similar as the rate is called variable but basically is an adjustable rate and adjusts based on prime which is set at 3% right now. Within one year things have changed in the variable market where the rates are basically 1% higher even though prime hasn't changed so the initial offering rate has gone up and the banks are profiting from this.
As for making extra payment 15% etc. Canadians typically aren't doing this and 62% of extra lump sum payments are going directly to credit cards and 46% to lines of credit and only 22% to mortgages. Borth countries obviously have major consumer debt issues to be worked through and the average Canadian consumer debit is up again from last year at $26,029 so although the systems are slightly different the debt issues offer the same results with record low rates supporting things.