What are the differences between Canadian and American Mortgages?

[Prairie Stash]

I'm Canadian.  My mortgage makes sense, to me. I've noticed there's slight differences, it seems to be based on what state the person is in though. PMI for starts.

Every 3-5 years I go to a bank and get a new mortgage.  They ask, variable or fixed interest rate? I said fixed last time, 4 year term, so for 4 years I have constant payments.  After the term is up I'll go in again and try my luck. Essentially the 4 years is a contract, at the term end the balance must be paid off! Typically done by renewing the mortgage or transferring the mortgage to another bank.

When I bought the house I put 5% down, so I paid a one time fee for mortgage insurance. I'll never pay another dollar for mortgage insurance.  If I put down 20% there's no fee.

I also have a HELOC, it was a one time fee to set up, good till I die. I can access cash in an hour.  The amount available is 80% equity of house minus principle remaining.

For the average person mortgage interest is not deductible (except in very strange tax shelters)

Is that how Americans do it?

[Dman214]

Sounds like PMI works about the same in the US. If you put down <20% you're likely going to have to pay PMI (with some exceptions). I think the rates vary depending on if you put down >10%, between 5 and 10% or <5%.

Most Americans get a 30 year mortgage (5 year mortgage would be very rare).  Some get a 15.  Can be fixed or variable interest rates, but a lot of people do fixed.

[nereo]

I'm a United-Statesian living in Canada. 
Like most things between the US and Canada, they are very very similar, with some peculiar differences.

In the US the standard is a 30 year mortgage.  AFAIK we're one of the only countries where this is common.  In Canada the 25yr mortgage seems to be more of the norm.
When you first get your mortgage you can get an ARM (adjustable rate mortgage) or a fixed mortgage. 
A "fixed" mortgage is exactly that - you know what your rate will be for the rest of the mortgage.  Some people have locked in rates of <4% for 30 years.  Incredible.  ARMs fluctuate with whatever the prime rate is.
There are of course shorter mortgage periods in both countries; 15 year mortgages are common in both countries.

Mortgage insurance in the US is required by many lenders and depends on how much principle you put down and (I believe) what the assessment of the home is worth.  Once you reach a certain threshold of equity (usually 20%) the lender no longer requires mortgage insurance.  The difference here between Canada and the US is that in Canada the CMHC is a government entity, whereas in the US you purchase mortgage insurance through a private company (almost always the bank that holds the mortgage).

Finally, there are a LOT more mortgage lenders in the US than in Canada.  I read somewhere that the US has over 200, but in Canada there are only 6 or 8.  Most regional banks and local banks are actually part of a larger network.

[Prairie Stash]

Thank you nereo. 

It's true we have 25 year amortization periods, but I don't know of anyone who has a 25 year mortgage term (typically you have 5 terms, if you're a normal person).  Like you said, it's a very slight difference.

The idea of 30 years of stable payments is definitely attractive. On a rental you could basically ignore the bank then, that would simplify things.  If I buy a rental here I assume rents go up enough over 5 years to cover the future higher interest rate (or I pay down extra principle as a precaution). 

With mortgage insurance in Canada, no one cares when you get 20% equity.  Nothing changes at all with the mortgage.  You become eligible for a HELOC, but that's a different loan. I keep reading about people paying monthly for the insurance, that sounds evil if you're underwater on the house and still in good standing on the loan. 

In fairness, with 5% down I would currently pay 2.9% of the loan, only once. Depending on the scenario I could see how an American would pay less over all.
http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

 

[lifejoy]

About $300,000.

Heh jk!

[Prairie Stash]

About $300,000.

Heh jk!

Lol, I wish you were joking!

[lifejoy]

About $300,000.

Heh jk!

Lol, I wish you were joking!

HA! ME TOO! I look at homes in Bellingham, Washington vs homes in Abbotsford, BC and the difference is unreal.... although, if I lived in the states I suppose I'd be paying for healthcare.

[gecko10x]

Regarding Mortgage Insurance: In the US, it is typically paid monthly, until you hit 80% LTV. However, it is possible to pay it up front (we did), and it can be cheaper that way. So, just like you, my payment won't change when we hit 80% LTV, even though were required to have mortgage insurance because of a small down payment.

[gecko10x]

Regarding ARMs:
A typical ARM in the US has a fixed rate period and an adjustable rate period, and most are based on a 30yr amortization schedule. So, there are 1/1 ARMs (1yr fixed, adjusts each year thereafter), 5/1 ARMs (5yr fixed, adjusts each year thereafter), 7/1, 10/1, and others. Some exist that adjust monthly instead of annually. 3/1, 5/1, 7/1 I think are relatively common.