Oh Canada

[Crunch Hardtack]

Link: http://www.greaterfool.ca/

Excerpt: "Four days ago the Bank of Canada torpedoed its estimate for economic growth. The bank boss, Mark Carney, has changed his tune dramatically. The US will not recover for two years, he says.

Others aren’t so cheerful. Yake economist and real estate guru Robert Shiller says the American housing disaster is only half done. In fact, late last week the Canadian Real Estate Association shocked the industry by reporting house sales in Canada this year have fallen off a cliff. Around the entire world, there is nothing so devastating, far-reaching or destructive to wealth as a real estate meltdown. I can only imagine the effect on my street."

And I thought this was an interesting comment on the above article (comment #6 MJW): "Speaking of missed torpedoes, another dawned on me as I read Greater Fool. Canada has an additional trap waiting for homeowners that Americans don’t get hit with.

In the US, mortgages are for 30 years typically - as long as you can make your mortgage payments, you keep you house.

In Canada, our mortgages last 5 years at which time a new mortgage must be negotiated. Low down payment mortgages combined with decreasing property values means that when mortgages expire, many Canadians may find that the bank won’t renew their mortgage as the debt is greater than their now deflated collateral (their house). Instant foreclosure."

Can you imagine the trouble we'd be in here in the U.S. if we had to renegotiate home mortgages every 5 years. ( But with socialized medicine and such up North, I thought Canada was sooooooooo much better than the U.S. ............guess not)

 

[Mark A Rewbury]

Yes you have to renew after 5 years or 1 or 2 or 3 depending on the length of the term. There is no fee to renew or an appraisal for that matter, it's just a rate reset that you can do online. In 1992 my 5 year term was 11.5% and then I reset to a 6 month term for 4%. I stayed at that six month term and renewed every six months until the mortgage was paid off. Hope that helps.

 

[Jungle Boy]

My inlaws negotiated a 2-year term last week at a bit over 5.7%.
There is a $400 pre-payment penalty if they sell the property before the term matures. There were no closing costs involved.

 

[Terrel L. Shields]

And if interest rates climb to 11%???? Its only been the early 90's when that happened and with inflation charging hard, the Interest rates HAVE to increase sooner or later.

 

[Ted Martin]

Given that most people in would move before the 5 year term expires that's not such a bad arrangement. Although I would have a personal preference for a longer term.

Is the amortization based on the five year term or is it based on a longer term? $100,000 at 5% for five years or $100,000, at 5% for thirty years with the rate reset every five years?

 

[Mark A Rewbury]

Given that most people in would move before the 5 year term expires that's not such a bad arrangement. Although I would have a personal preference for a longer term.

Is the amortization based on the five year term or is it based on a longer term? $100,000 at 5% for five years or $100,000, at 5% for thirty years with the rate reset every five years?

It's a 25 year amm

 

[Mike Boyd]

BUT......it would be GREAT for the appraisal industry!!!

 

[Ted Martin]

Not really, since it was indicated that it is simply a adjustment to the rate, no appraisal, no fees just a new payment schedule. Given that more than 70% of US mortgages are adjustable not that much different from our "average mortgage".