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Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats wit

Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)

asdf33323 9y ago
"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?
- rconti 9y ago
  Mortgages are typically longer than 5 years.
  - tostitos1979 9y ago
    Exactly. In a US 30 year mortgage, it is reasonable to expect a borrower to pay it off. In a 5 year mortgage, you will typically refinance after 5 years (unless you hit the jackpot in the interim).
    - sliverstorm 9y ago
      That sounds obnoxious, being forced to refinance 5 times. Why not a 30 year 5/5 ARM? (Rate adjusts every 5 years to market rate)
- dzdt 9y ago
  In the US, the most standard "fixed rate" mortgage has the rate fixed for 30 years. A mortgage where the rate changes before loan maturity would be called an "adjustable rate mortgage" ("arm" for short).
  - peeters 9y ago
    Aren't we only talking about a difference in term length then? i.e. it's more common for the term length to equal the amortization length in the U.S.? In Canada even the amortization/maturity can't be greater than 25 years. And terms are commonly 5 years.
    - emodendroket 9y ago
      We can quibble about terminology but it sounds like a system wildly different from the US one, where most people have 30-year, fixed-rate mortgages.
peeters 9y ago
What you're describing is a fixed rate mortgage with a 5 year term. We may not allow 40 year terms, but that doesn't mean we don't allow fixed rate mortgages. After the term is up you can renegotiate a new fixed rate term if you want, or move your mortgage. That said, fixed rate mortgages almost always cost you more in the long run, though a 5 year term is probably going to screw you less than a 25+ year term.
- goodcanadian 9y ago
  Oh my. We are arguing over semantics. In the US, a fixed rate mortgage typically has a term equal to its amortization schedule. I.E. your interest is fixed for 30 years. In Canada, there are things called "fixed rate mortgages" where the interest is fixed for the term of the mortgage, but I have never seen a term longer than 5 years (most are shorter). The mortgage is typically amortized over a period of no longer than 25 years. So, in Canada, you have to get a new mortgage every few years and you are at the mercy of interest rate changes.
  - papercrane 9y ago
    > but I have never seen a term longer than 5 years (most are shorter). Five is pretty standard, but you can get longer if you want. RBC has seven year rates on their website, and if you ask you can get the full term of your mortgage. The rate is ridiculous though, for example, in April 2013 the RBC posted rate for a 25-year term was 8.75%. Obviously negotiable, but still a high starting point. When I was financing our first home our mortgage broker said he only ever had one person get a 25-year term. Source for the 25-year rate: http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-how-to-play-it-really-safe-in-housing-at-a-price http://business.financialpost.com/personal-finance/mortgages...
  - ProfessorLayton 9y ago
    This sounds like its both good and bad, depending on which side you're on. Tracking current interest rates helps keep the market liquid, something that many "hot" markets aren't (Bay Area). A lot of people in the Bay Area got their 30y mortgages locked in at a fantastic (low) 3.x% in the last ~5y, and would be hesitant to give that up, even if they wanted to upgrade. Combined with with property taxes that are locked to inflation, means that a homeowner has an incentive not to sell, and buyers compete for limited inventory.
pycal 9y ago
In Canada, banks offer fixed and floating rate mortgages; the mortgage rate is always prime + some %. If you get a fixed-rate mortgage, you're locked in to your rate for 5 years regardless of how the Bank of Canada changes the prime rate. This has been the product of choice for Canadians for the last several years because it protects you against rising interest rates, and rates have had nowhere to go but up. If you get a floating-rate, your rate moves when the Bank of Canada moves the rate. This is desirable if you think the BoC is going to lower interest rates. Self-plug - I made a tool to look at how sensitive your monthly mortgage payment is to movements in interest rate: https://pycal.github.io/real-time-ammortization/ https://pycal.github.io/real-time-ammortization/
- emodendroket 9y ago
  Yeah, but locking in a rate for 5 years is so different from locking it in for 30 that it seems kind of misleading to say "both places have fixed-rate mortgages." I'm actually a little unclear on the specifics here; is it that you have a balloon payment and the typical thing is to get another, smaller loan to pay that off?
  - goodcanadian 9y ago
    Technically, yes, you are on the hook for a balloon payment. In practice, however, you would get a new mortgage for the remainder owing. You can, of course, be screwed in the event of rising interest rates or collapsing property values. Unlike the US, there are hefty fees for early payoff of the mortgage, so if you were in the position to pay it off, you would probably want to wait until the end of the current mortgage (depending on lots of different factors, of course).
    - emodendroket 9y ago
      OK, got it. Frankly, it seems like a system that makes owning a home less attractive, but I suppose US policy has been driven by the idea that home ownership should be encouraged.

asdf33323 9y ago

"The notion of fixed rate mortgages does not exist in Canada." ... "You can lock in for about 5 years" what?

rconti 9y ago
Mortgages are typically longer than 5 years.
- tostitos1979 9y ago
  Exactly. In a US 30 year mortgage, it is reasonable to expect a borrower to pay it off. In a 5 year mortgage, you will typically refinance after 5 years (unless you hit the jackpot in the interim).
  - sliverstorm 9y ago
    That sounds obnoxious, being forced to refinance 5 times. Why not a 30 year 5/5 ARM? (Rate adjusts every 5 years to market rate)
dzdt 9y ago
In the US, the most standard "fixed rate" mortgage has the rate fixed for 30 years. A mortgage where the rate changes before loan maturity would be called an "adjustable rate mortgage" ("arm" for short).
- peeters 9y ago
  Aren't we only talking about a difference in term length then? i.e. it's more common for the term length to equal the amortization length in the U.S.? In Canada even the amortization/maturity can't be greater than 25 years. And terms are commonly 5 years.
  - emodendroket 9y ago
    We can quibble about terminology but it sounds like a system wildly different from the US one, where most people have 30-year, fixed-rate mortgages.

peeters 9y ago

What you're describing is a fixed rate mortgage with a 5 year term. We may not allow 40 year terms, but that doesn't mean we don't allow fixed rate mortgages. After the term is up you can renegotiate a new fixed rate term if you want, or move your mortgage. That said, fixed rate mortgages almost always cost you more in the long run, though a 5 year term is probably going to screw you less than a 25+ year term.

goodcanadian 9y ago
Oh my. We are arguing over semantics. In the US, a fixed rate mortgage typically has a term equal to its amortization schedule. I.E. your interest is fixed for 30 years. In Canada, there are things called "fixed rate mortgages" where the interest is fixed for the term of the mortgage, but I have never seen a term longer than 5 years (most are shorter). The mortgage is typically amortized over a period of no longer than 25 years. So, in Canada, you have to get a new mortgage every few years and you are at the mercy of interest rate changes.
- papercrane 9y ago
  > but I have never seen a term longer than 5 years (most are shorter). Five is pretty standard, but you can get longer if you want. RBC has seven year rates on their website, and if you ask you can get the full term of your mortgage. The rate is ridiculous though, for example, in April 2013 the RBC posted rate for a 25-year term was 8.75%. Obviously negotiable, but still a high starting point. When I was financing our first home our mortgage broker said he only ever had one person get a 25-year term. Source for the 25-year rate: http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-how-to-play-it-really-safe-in-housing-at-a-price http://business.financialpost.com/personal-finance/mortgages...
- ProfessorLayton 9y ago
  This sounds like its both good and bad, depending on which side you're on. Tracking current interest rates helps keep the market liquid, something that many "hot" markets aren't (Bay Area). A lot of people in the Bay Area got their 30y mortgages locked in at a fantastic (low) 3.x% in the last ~5y, and would be hesitant to give that up, even if they wanted to upgrade. Combined with with property taxes that are locked to inflation, means that a homeowner has an incentive not to sell, and buyers compete for limited inventory.

pycal 9y ago

In Canada, banks offer fixed and floating rate mortgages; the mortgage rate is always prime + some %. If you get a fixed-rate mortgage, you're locked in to your rate for 5 years regardless of how the Bank of Canada changes the prime rate. This has been the product of choice for Canadians for the last several years because it protects you against rising interest rates, and rates have had nowhere to go but up. If you get a floating-rate, your rate moves when the Bank of Canada moves the rate. This is desirable if you think the BoC is going to lower interest rates. Self-plug - I made a tool to look at how sensitive your monthly mortgage payment is to movements in interest rate: https://pycal.github.io/real-time-ammortization/ https://pycal.github.io/real-time-ammortization/

emodendroket 9y ago
Yeah, but locking in a rate for 5 years is so different from locking it in for 30 that it seems kind of misleading to say "both places have fixed-rate mortgages." I'm actually a little unclear on the specifics here; is it that you have a balloon payment and the typical thing is to get another, smaller loan to pay that off?
- goodcanadian 9y ago
  Technically, yes, you are on the hook for a balloon payment. In practice, however, you would get a new mortgage for the remainder owing. You can, of course, be screwed in the event of rising interest rates or collapsing property values. Unlike the US, there are hefty fees for early payoff of the mortgage, so if you were in the position to pay it off, you would probably want to wait until the end of the current mortgage (depending on lots of different factors, of course).
  - emodendroket 9y ago
    OK, got it. Frankly, it seems like a system that makes owning a home less attractive, but I suppose US policy has been driven by the idea that home ownership should be encouraged.