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0 pointsrufus_foreman3y ago0 comments

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.

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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

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ameminator3y ago

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

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

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