Canada’s mortgage market was a highlight of a recent industry meeting sponsored by the U.S. Federal Reserve Bank of Cleveland. Virginie Traclet from the Bank of Canada was there to present rules governing our mortgage market.
Wall Street Journal housing reporter and blogger James R. Hagertynoted key differences in the Canadian mortgage system presented by Traclet, that likely helped stave off an implosion similar to the US housing crash:
Interest on mortgage debt in Canada is not tax deductable, thus lowering the incentive among homebuyers to take on more debt.
Lenders in Canada can go after borrowers’ other assets should they default on mortgage loans. This process is more convoluted for U.S. banks, making it easier for some borrowers to walk away from their mortgages.
CMHC mortgage insurance in Canada is mandatory if the mortgage amount exceeds 80% of the property’s estimated value. Hagerty’s blog suggests that while borrowers in America aren’t required to buy insurance up front, they ended up paying big in the end; U.S. taxpayers ultimately underwrite government bailouts of big mortgage lenders.
Traclet and Hagerty stopped short of saying that the Canadian mortgage system is better than that of the U.S. However, with homeownership rates in Canada being roughly equal to the U.S., only about 0.44% of Canadians are three months or more behind in their mortgage payments as of March 2010. Compare this to 9.5% of homeowners in the U.S. As well, subprime loans account for only about 5% of the market in Canada.
Not everyone agrees on Canadian mortgage rules, but overall, a more conservative approach to mortgage lending kept our housing market relatively stable during the worst recession in decades. Can you afford a mortgage? Find out using our CENTUM mortgage calculator tools.
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Updated:August 01, 2017
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