There are great differences in mortgages between Canada and the US, and they clearly favor the US .  Since the purchase of a home is typically the largest single purchase you will make in your lifetime, getting the right mortgage should be of primary consideration as well.  We have helped numerous clients making the transition to the US get the right mortgage with the right terms from the right (read honest) mortgage broker!

Amortization - In Canada , the typical mortgage is amortized over 25 years, while it is 15 or 30 years in the US .  Taking a 30-year mortgage will obviously lower your monthly payments from a 15-year mortgage but which mortgage you select in the US depends on your individual circumstances.  There are also a number of other loan options (such as interest only) to consider besides these conventional loans that may better suit you.

Fixed Interest Rate - In Canada , the typical mortgage fixes your interest rate for up to seven years and then it is adjusted to the prevailing rate at that time.  You are required to bear the risk of any interest rate changes.  This is where a US mortgage has a big advantage over Canada because you can fix your interest rate for the full 15 or 30 year amortization . . . the bank bears the interest rate risk.  This can make a huge difference in stabilizing one of your largest debts over the long-term!  The other nice thing in the US is if mortgage rates decline significantly at any point, it may make sense to refinance your mortgage and lock it in for another 30 years at an even lower rate, lowering your monthly payments even further.

Prepayments - Here is another area that makes US mortgages far superior than Canadian mortgages.  Most US mortgages have no prepayment penalties while Canadian financial institutions impose penalties for prepayments or simply do not allow any prepayments at all.  In the US , you can send in as much additional money above your monthly mortgage payment as you wish and it all gets applied to the principal.  This means you can pay off your mortgage whenever you have the funds to do so!  Many Canadians often want to set up bi-weekly payment schedules on their US mortgages because it is an effective strategy in Canada to pay off your mortgage sooner.  Most of the time, the US banker is happy to oblige but watch out, there are many hidden costs and fees that you need to be aware of and it typically does not make sense. 

Interest Calculation - In the US , mortgages are calculated using simple interest while in Canada , interest is compounded semi-annually.  This means in Canada , if your mortgage is in arrears, you pay interest on both the principal and the accumulated interest.  In the US , you only pay interest on the original principal.

Down payment - To purchase a home in Canada , you are required to put 25% down or more to avoid mortgage insurance costs from Canada Mortgage & Housing Corporation.  In the US , the requirement is 20% to avoid mortgage insurance costs from the Federal Housing Authority or, a private insurer like Fannie Mae.

Closing Costs - It has been our experience that closing costs in Canada are higher than in the US .  In particular, lender fees in the US are around $400 in the US vs. $1,000 in Canada .  In addition, legal fees and land title fees are seen in the closing costs in Canada but not in the US .  Usually, the closing of a home in Canada is done by an attorney whereas in the US, a title company is used. However, you typically don't need a termite inspection fee in Canada!

Points - Points are something you will only see in the US and can offer substantial benefits if planned correctly.  There are three types of points: discount points and loan origination points. Discount points allow you to "buy down" the interest rate on your mortgage.  A point is typically 1% of the loan amount, which reduces your interest rate by an 1/8th or so.  Origination points, on the other hand, are fees charged by the lender for the evaluation, preparation and submission of your mortgage loan application (typically "junk" fees).  There are also seller paid points to provide an incentive to buyers by offering a discount of X% on the sale of a home.  The important thing to note is that points may be deductible on your US tax return so some careful planning here can provide an added benefit to you in getting the house you want.

Impound (Escrow) Accounts - Impound accounts are another item seen only in the US that you need to be aware of.  In the US , the mortgage lender will automatically roll your homeowners insurance and property taxes into your monthly so they can be "pre-collected."  The insurance company or local government sends the bill directly to the mortgage company who pays them out of your "escrow/impound account."  The rationale behind these accounts is that since the mortgage company owns 80% or more of your home, they feel the need to ensure the property taxes are paid and the home is protected in the event of fire, etc.  They do this by collecting the money for these items in advance as a part of your monthly mortgage payment and earning interest on it until the money is due.  Overall, these are a bad deal for you so be wary before blindly accepting these impositions.  Contact us if you would like assistance in understanding impound accounts.