Canadian Housing Market: Engineering a Soft Landing
Housing Market Differences vs U.S.
Canada's housing market features distinct practices and policies
Regulation and
Taxation
Product
Underwriting
Canada
Mortgage interest not tax deductible
Full recourse against borrowers in most provinces
Foreclosure on non-performing mortgages, no stay periods
Insurance
Mandatory default insurance mortgages with LTV > 80%
CMHC backed by Government of Canada (AAA). Private insurers
are 90% government backed
o Insurance available for homes up to CAD 1 mn
o Premium is payable upfront
O
Covers full amount for life of mortgage
Homebuyers must qualify for mortgage insurance at an interest rate
that is the greater of their contract mortgage rate or the Bank of
Canada's conventional five-year fixed posted rate
Re-financing cap of 80% LTV on non-insured mortgages
Amortization
Maximum 25-year amortization on mortgages with LTV > 80%
Maximum 30-year amortization on conventional mortgages
Down payment of > 20% required for non-owner
occupied properties
Conservative product offerings, fixed or variable rate options
Much less reliance upon securitization and wholesale funding
Asset-backed securities not subjected to US-style off-balance sheet
leverage via special purpose vehicles
• Terms usually three or five years, renewable at maturity
Extensive documentation and strong standards
U.S.
• Tax-deductible mortgage
interest creates incentive to
borrow and delay repayment
⚫ Lenders have limited recourse
in most states
• 90-day to 1-year stay
period to foreclose on
non-performing mortgages
•
• No regulatory LTV limit
Private insurers are not
government backed
Can include exotic products
(e.g. adjustable rate
mortgages, interest only)
30-year term most common
Wide range of documentation
and underwriting requirements
Scotiabank.
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