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AFAIK the problem often is that the home is collateral for the loan, and when prices fall the bank demands more collateral to match the loan (even if you could

AFAIK the problem often is that the home is collateral for the loan, and when prices fall the bank demands more collateral to match the loan (even if you could still pay your monthly payments). If you can't pony up, the bank may take over and sell with the current (lower) price. You're left with no home and still have to pay the part of the loan that remains due to price difference. Disclaimer: not sure this is how US/Canadian mortgages actually work, but this screwed lots of people in a certain financial crisis I know of.

refurb 10y ago
I can confirm that Canadians banks do this, but I'm not sure if it happens all the time. One of the biggest differences between Canada and the US is 30 year terms for mortgages. They are standard in the US and allow you to lock in a fixed rate for pretty much the rest of your life. In Canada, they still do 30 year amortization, but loans are typically 5 year. You can get 1 year sub-prime loans with very low rates or 10 year fixed with higher rates. The 5 year is the most common. What this means is that you don't get to enjoy a fixed rate over your lifetime. Get a mortgage for 4%? Great, it might be 7% 5 years from now. In other words your monthly payment could increase substantially. Since you need to reapply for a mortgage in Canada, the banks will reassess the value and make sure you have enough collateral. I have heard of people refinancing after a downturn and the bank asks for another $5K to $20K to make sure you have the minimum 20% equity.
- SimonPStevens 10y ago
  This is exactly the same problem as the UK housing market. Mortgage loans typically have 2-10 year periods of discount or fixed rate (with the lowest interest rates normally found on the 2 year plans), then they revert back to the 'standard variable rate' which is significantly more expensive, and subject to change at very short notice. To keep a low interest rate you have to reapply for your mortgage every few years to get a new deal, and with reapplication comes the requirement to have a certain percentage of equity to loan.

refurb 10y ago

I can confirm that Canadians banks do this, but I'm not sure if it happens all the time. One of the biggest differences between Canada and the US is 30 year terms for mortgages. They are standard in the US and allow you to lock in a fixed rate for pretty much the rest of your life. In Canada, they still do 30 year amortization, but loans are typically 5 year. You can get 1 year sub-prime loans with very low rates or 10 year fixed with higher rates. The 5 year is the most common. What this means is that you don't get to enjoy a fixed rate over your lifetime. Get a mortgage for 4%? Great, it might be 7% 5 years from now. In other words your monthly payment could increase substantially. Since you need to reapply for a mortgage in Canada, the banks will reassess the value and make sure you have enough collateral. I have heard of people refinancing after a downturn and the bank asks for another $5K to $20K to make sure you have the minimum 20% equity.

SimonPStevens 10y ago
This is exactly the same problem as the UK housing market. Mortgage loans typically have 2-10 year periods of discount or fixed rate (with the lowest interest rates normally found on the 2 year plans), then they revert back to the 'standard variable rate' which is significantly more expensive, and subject to change at very short notice. To keep a low interest rate you have to reapply for your mortgage every few years to get a new deal, and with reapplication comes the requirement to have a certain percentage of equity to loan.