Mortgages in the United States and Canada Are Not the Same
Depending on where you live, mortgages can be as different as night and day in financial terms. Here are seven examples that illustrate this point by comparing Canada and the United States:
- A 5-year mortgage is common in Canada while a 30-year mortgage is standard in the United States.
- Canadian mortgages are portable (can apply to a new home) and U.S. real estate loans are attached to the original property.
- Mortgage interest is not deductible in Canada but is deductible in the United States.
- The homeownership rate is 2 percent higher in Canada than in the U.S.
- The number of mortgage lenders selling loans to another lender recently reached 40 percent in the United States. In comparison, this total has never been more than 3 percent in Canada.
- During the last five years, U.S. mortgage loan defaults approached 5 percent (20 percent of subprime mortgages), and Canadian defaults were under 1 percent.
- Mortgage insurance is less common in the United States than in Canada.
Differences Between Commercial Mortgages and Residential Financing
Homeowners familiar with residential mortgages are often surprised to learn how different commercial mortgage loans are in comparison. These differences become especially important if you decide to buy a business or commercial property. Seven of the most critical differences are the following:
- Some commercial lenders require annual reviews of business income and loan terms, while residential loan terms (except for variable-interest-rate mortgages) are typically fixed for the length of the loan.
- Business mortgages are primarily based on projected business income, and residential mortgage loans are determined by the estimated market value of the property.
- Down payments and interest rates are usually higher for commercial properties.
- Assumable loans and seller financing are more common with commercial real estate loans.
- Lenders making business loans are frequently different than residential mortgage lenders.
- Commercial appraisals are more involved and costly than residential appraisals.
- Residential mortgage brokers frequently do not understand the many complexities involved in business financing and commercial mortgages.
A Final Note About Mortgages
There are two critical processes that will help to improve all variations of mortgage financing regardless of location:
- Due diligence
These are both specialized processes that require differing degrees of help from real estate experts. Regardless of the desire to expedite the closing of a residential or commercial loan agreement, you should never accept shortcuts with either the due diligence requirements or financial negotiations.