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0 pointsmig393y ago0 comments

Canada does both adjustable-rate and fixed-rate mortgages. Just that we tend to do it for shorter periods. Typically 5 or 10 years.

I have two fixed-rate mortgages with really low rates. They won't come up for renewal until 4 years from now. Then I'll have to choose whether to do another 5 years with the current rate, or convert over to an adjustable rate.

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rufus_foreman3y ago

In the US a mortgage with a rate that resets after 5 years would be considered an adjustable rate mortgage, although the rate would typically reset yearly after the initial 5 years (a 5/1 ARM).

A mortgage that ends after 5 years and needs to be renewed would be considered a balloon mortgage, and they are rare in the US. They are "non-qualified" mortgages which means the government sponsored entities won't buy them, so there is a limited secondary market and they have much higher rates.

I don't think I would sleep great at night knowing that every 5 years I would need to either get a new mortgage loan or lose my house.

ameminator3y ago

It seems to be common due to the oligopoly of Canadian banks (there are 5 big banks for all of Canada and the concept of a small bank just doesn't exist, due to regulatory hurdles). It's a way to push the risk onto the consumer and guarantees that homeowners are first to suffer in a downturn - conversely Canadian banks are very "safe" from economic pressures, at least compared to their American counterparts. It's already a big problem because Canadian household debt has reached 2.1 trillion dollars [0], with a GDP of 1.9 trillion dollars [1] (all in USD). Note these figures don't include government debt, which is also significant. Altogether, Canada may face a liquidity crisis on servicing the debt, if rates continue to rise.

[0] https://www.ceicdata.com/en/indicator/canada/household-debt

[1] https://tradingeconomics.com/canada/gdp

subarctic3y ago

Canada doesn't have the concept of fixed-rate mortgages like in the US though, which is where the rate is fixed for the entire life of the mortgage. What you are describing is an adjustable-rate mortgage with an initial 5 year fixed-rate term, which in the US would be called a 5/1 ARM.

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