If you ever thought it was expensive to close a mortgage, have a peek at what our American neighbours pay.
This is a recent printout from a major U.S. lender. (Click to enlarge)
On a prime mortgage, Canadians are generally spared loan discount fees (aka., “points,” or rate buy-down fees), “underwriting fees,” and “processing fees” to name a few.
Canadian lenders tend to absorb some of these fees, and in other cases, much of the fee difference can be attributed to different U.S. closing requirements.
In total, the average closing cost for a mortgage origination in Canada is roughly $1,000 USD, versus an average of $3,700 USD in the States. (Source: AllBusiness).
Yet another reason it’s great to be Canadian…
Reason it’s great to be American: 30-year fixed rates that are available for reasonable rates….
If I were American, I could easily commit to a $500,000 mortgage with the assurance that I’d be able to make the monthly payments for the full 30-year term.
I can’t imagine where interest rates will be in 5 years when my Canadian friends’ mortgages come up for renewal.
Gotta disagree.
Why pay 6.00% for 30 years (including points) when you can get 3.79% in Canada for 5 years?
Variables and shorter terms virtually always beat longer-term mortgages over time.
U.S. title insurance is way more expensive too.
@Vince – bcs you don’t know what you’d be paying for the remaining 25 years.
Among other reasons to celebrate – consider Ontario and Toronto land transfer fees that rack up the bill. In addition, if you are buying a new house later this year in Ontario you’ll be merrily paying HST on it. Not being able to deduct mortgage interest from income tax (no I don’t believe Smith maneuver counts) …
Mortgage interest deductibility just results in higher housing costs when the “savings” are capitalized into house prices.
And to pay for this measure, you either have higher taxes, a larger debt, or a combination of the two.
Congrats.
Al R.
Seems to me that comapared to a Canadian 25 yr mortgage currently at 8%, the American 30 yr at 5.3% has more than enough savings to offset the higher closing costs.
Speaking of which, why is it that Canadian long term mortgages are so much more expensive than the US? I find that quite perplexing. I’d welcome any explanations from the brokers on the site.
@ Dave,
while I am not a broker, the long term rates need to carry cost certainty. We all know it is extremely difficult to know where the bond market is going, so you will pay a significant surcharge.
At the end of the day, the lending institution isnt out to lose money.
Personally, I think the 30 year mortgage is one of the only redeeming qualities of the US Mortgage market.
I think having the option to lock in for 30 years would be great.
Although there are set up fees. When stretched over the 30 years it has a minimal impact on the APR.
Correct me if I’m wrong Rob, but it is my understanding most US mortgages are also open. Therefore no nasty IRD if you do need to refinance.
It is probably not the right mortgage for every client, but it would be nice to have it as an option.
Especially at 5.27%
If you compare long term mortgages to short term mortgages, long term wins 85-90% of the time. In the low rate era we are in, paying even 5.5% for a 30 year mortgage seems foolish compared to a 3.79% Canadian 5 year. Sure, rates could go up 1.71%, but will they stay up 1.71% for 30 years? I don’t think so. Runaway inflation is no longer a worry. Canada’s central bank won’t let it happen and our aging and heavily taxed economy are not conducive to it.
Paulo,
I understand that the institution needs to make money. But if the US banks can make money at 5.3%, then why do our banks need 8%?
“Sure, rates could go up 1.71%, but will they stay up 1.71% for 30 years? I don’t think so. Runaway inflation is no longer a worry. Canada’s central bank won’t let it happen and our aging and heavily taxed economy are not conducive to it.”
Thats one opinion on what might happen. Another opinion is that sovereign debt issuance everywhere will eventually crash the bond market and rates will skyrocket out of control.
I don’t presume to out-smart a trillion dollar bond market, but I always find it bizarre that people still think that central banks are in control of much of anything when we just watched the entire world nearly collapse a few years ago because of their mismanagement. Bernanke was on the record as seeing no evidence of any housing bubble. Before that, Greenspan was oblivious to the dotcom bubble and the housing bubble. Why would they be able to see a bond market bubble before it popped?
Anyway, to move back towards the original off-topic question, why *can’t* we get good rates on 30 year fixed mortgages in Canada? You’d think between all the “financial innovation” and the entry of US players into our markets, it would be a cinch for people like me to find someone who wants to make some easy money by locking me in.
@ D.L.
Inflation for the Month of January was a staggering 1.9%, as was reported by a Canadian magazine. That is a highly surprising number. As I understand, it is under the target the BoC sets out, but much closer than any other month. It is difficult (read: impossible) to know where rates are going, but the speculation is fun. In my novice opinion, when you look at something like out current rates and you consider them at these historic lows, I dont think you can argue with much weight that they will continue at or near the current mark.
I do with they would.
@ Dave,
I am a novice when it comes to knowledge in the mortgage industry, however you have to think the American banks do not pay nearly as much for their fixed rate funding as Canadian banks do. Or if they do, they must make their accountants blend their fixed rate mortgages with their variable rate mortgages to make the bottom line look good.
If there was a 5.27% 30 year term (or term of what ever mortgage) I would seriously consider that myself…but not at 8+%
I would also like the best rates possible, without having the banks fail and sap up our tax dollars…but that is just me.
@ D.L.
“Sure, rates could go up 1.71%, but will they stay up 1.71% for 30 years? I don’t think so. Runaway inflation is no longer a worry. Canada’s central bank won’t let it happen and our aging and heavily taxed economy are not conducive to it.”
You’re right in that the central bank won’t let it happen. If runaway inflation takes hold, they’ll raise interest rates to tame it. I’m not sure how you presume that they can control inflation without tweaking rates.
We all have our own opinion, of course… mine just happens to be that inflation is going to go up and force the Bank of Canada’s hand.
@ Aston Lau
Inflation without job growth…How is that going to happen? I can’t see the North American job market coming back for at least 10 years, if at all. Were in for a prolong period of next to zero growth in the North America ecomonies. We have already spent our future growth via debt and now need some time to pay off that debt. One good thing though is interest rates will remain historical low for a long long time. Why? because they have to, to much debt out there to raise them much without harming our economies even more than they aready are.
DaBull,
I agree with you that inflation will likely remain low for a long time. However I am not so certain that interest rates will similarly remain low.
Interest rates are the cost of money. Given the ever increasing volume of sovereign debt, and the impending drawing down of boomer retirement savings, I wonder if the providers of credit in our world (aka the bond market) might not be able to charge and increasingly hefty premium for their money.
In any case, it will be a fascinating macro-economic story unfolding over the next decade.
True-enough, Canadian purchasers are typically spared the closing cost of US households, however all that’s lost to Realtor fees which are an order of magntitude higher in Canada!
some great comments on this thread already. DaBull, I completely agree with you. Economic growth will continue to be aenemic for several years. All the ‘experts’ have been warning that rates will rise for the past 12 months! And what happens? Rates edge up a fraction and then come right back down again. Central Banks know they can’t raise interest rates or what tiny economic recovery we may have will very quickly be wiped out. Businesses and consumers are still way over-leveraged to debt and with US housing prices being decimated over the last few years, many people are underwater on their one major asset, their property. With job growth still negative (and by recent reports beginning to get worse again with more mass layoffs than we’ve seen in 6 months or more) there is no way bank rates can rise. Companies continue to have no pricing power with the onslaught of cheap Chinese goods flooding the world market. So inflation is limited to food and energy. Energy prices see-saw up and down as traders move them but food prices are a concern.
Overall inflation is likely to be tame though in most Western countries for the next several years (of course things can change but unlikely in the near future in my opinion) so mortgage interest rates have to stay low for an extended period or you’ll lose even those few people that actually are able to get into the housing market or are trying to refinance.
Realtor fees are ABSOLUTELY LUDICROUS in Canada. For them to pocket perhaps $20,000 on selling only a $500,000 apartment, for about 3 days worth of work in some cases borders on the insane. Most Realtors drive around in Mercedes or better – because they can.
I doubt very much their US counterparts are milking the system in quite the same way.
@Al – Job growth is NOT negative; that is factually incorrect.
The Labour Force Survey showed a net increase of 43,000 jobs in January, marking the fourth employment gain in the last six months.
The labour market is actually doing pretty well, all things considered.
Al R
Al R, I was referring to the jobs numbers in the USA, not Canada. In the US, mass layoffs were UP dramatically in the most recent report. Yes, Canada fared better in recent months but much of those job gains were part-time (almost no full-time jobs created) and the gains in British Columbia will likely peter out very soon as thousands of people employed for the Winter Olympics will be back on the market looking for work in what has to be one of the most difficult labour markets in recent history.
@ Al – Sorry, my mistake.
Nevertheless, the FT/PT breakdown is not as dire as you suggest. In fact, since August 2009, Canada has created over 160,000 net new full-time positions (growth of 1.2%), but has shed almost 44,000 part-time positions (-1.3%). (All numbers courtesy of StatCan).
What is especially encouraging about the last 3 Labour Force Surveys is that private sector job creation has outpaced the public sector. Regardless of what happens in the US, improving Canadian employment numbers will put upward pressure on domestic inflation, which is what the BoC cares about.
Al R
@ DaBull: “Inflation without job growth…How is that going to happen?”
In a word… stagflation.