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The typical Canadian mortgage would have a smaller monthly payment because they've locked in a lower interest rate for 5 years, instead of 30 years. For example

The typical Canadian mortgage would have a smaller monthly payment because they've locked in a lower interest rate for 5 years, instead of 30 years. For example, it looks like right now (just a quick Google, so maybe these are off) a 30y rate in the US is about 5.2%, while in Canada you'd be able to get around 3.9%. If the rates where the same then the payments would be the same. Although 30y mortgages are atypical in Canada, 25 year amortization is the norm here. The risk for the Canadian borrower is that rates might go up significantly in 5 years, while the American lender is taking the risk that rates might go up significantly and they've got capital locked up at lower rates then what they could get.

dragonwriter 4y ago
> The typical Canadian mortgage would have a smaller monthly payment because they've locked in a lower interest rate for 5 years, instead of 30 years. The US has variable rate mortgages that are only fixed for, say, 5 years, but even when the minimum rate is capped just below the initial rate, they have only slightly lower initial rates than 30-year fixed rate mortgages , because while fixed rate mortgages price in interest rate risk, variable rate mortgages price in default risk (which is increased by the transfer of interest rate risk to the borrower.) > For example, it looks like right now (just a quick Google, so maybe these are off) a 30y rate in the use is about 5.2%, while in Canada you'd be able to get around 3.9% That's likely due to differences between Canadian and US markets other than the term for which rates are fixed, since 5/1 ARMs in the US, which aside from the interest rate lock are offered in a comparable market to US 30-year fixed mortgages, are currently at 5.04% national average.
listenallyall 4y ago
That makes more sense. The OP talking about lower monthlies combined with a balloon payment and then people moving at the end of the term, strongly implies deferring principal such that it never actually gets paid off. Further, the OP made it sound like a lower monthly payment is a given. In fact, as you note, that's only true when rates are not rising. The OP (and lots of homeowners, apparently) is going to be in for a surprise as the most recent cohort of Canadian 5-year mortgages come due and get refinanced at current rates. Those payments will no longer be lower than the US equivalent who locked in a 30-year fixed rate between 2017-2021. Thanks for the (much better) explanation.

dragonwriter 4y ago

> The typical Canadian mortgage would have a smaller monthly payment because they've locked in a lower interest rate for 5 years, instead of 30 years. The US has variable rate mortgages that are only fixed for, say, 5 years, but even when the minimum rate is capped just below the initial rate, they have only slightly lower initial rates than 30-year fixed rate mortgages , because while fixed rate mortgages price in interest rate risk, variable rate mortgages price in default risk (which is increased by the transfer of interest rate risk to the borrower.) > For example, it looks like right now (just a quick Google, so maybe these are off) a 30y rate in the use is about 5.2%, while in Canada you'd be able to get around 3.9% That's likely due to differences between Canadian and US markets other than the term for which rates are fixed, since 5/1 ARMs in the US, which aside from the interest rate lock are offered in a comparable market to US 30-year fixed mortgages, are currently at 5.04% national average.

listenallyall 4y ago

That makes more sense. The OP talking about lower monthlies combined with a balloon payment and then people moving at the end of the term, strongly implies deferring principal such that it never actually gets paid off. Further, the OP made it sound like a lower monthly payment is a given. In fact, as you note, that's only true when rates are not rising. The OP (and lots of homeowners, apparently) is going to be in for a surprise as the most recent cohort of Canadian 5-year mortgages come due and get refinanced at current rates. Those payments will no longer be lower than the US equivalent who locked in a 30-year fixed rate between 2017-2021. Thanks for the (much better) explanation.