Canadian Mortgages As Opposed To American Mortgages
Despite the fact that it is at times really difficult to differentiate between the Canadians and the Americans, the former often likes to accentuate on how special they are from their American counterparts. It is significant to note that as far as the issue of mortgage investment is concerned, the fundamental perceptions and legitimacies in both the neighbouring nations are similar. In fact, a closer look at the basics and legal aspects in both the countries would reveal that their societies still essentially follow the British tradition.
Nevertheless, there are also several noteworthy dissimilarities between the Canadian and American mortgage systems that primarily concern the costing and gathering the credit interest. In fact, the dissimilarities in this respect are so significant that the American publications and materials on the subject of mortgage financing can truly misinform the Canadians. The same holds true for the Americans too and they may also be misguided if they follow the Canadian literature on the topic. It may aptly be described as a situation where 'you lose some, and also gain some'. Basically, there are five major areas where the Canadian and American rules differ on mortgage financing.
- The basic difference between the Canadian and American mortgage finance rules is that abiding by the Interest Act of Canada, the mortgages are usually worked out semi-annually or twice in a year in this country. On the contrary, the mortgages are calculated every month in America. Thus, it has been found that the borrowers in Canada benefit more than the Americans by virtue of the law of their land. The yearly interest charge calculated once in six months in Canada is definitely lower than the monthly interest rates in US.
- Secondly, whether it is monthly, weekly, bi-weekly or semi-monthly, in America the mortgages are charged in advance, usually at the beginning of a period. This mode is similar to the Americans' system of paying their rents. On the other hand, in Canada the mortgages are paid at the conclusion of the recompense period. Hence, this method also proves to be advantageous for the Canadian borrowers than the lenders. This is primarily owing to the fact that the Canadian borrowers can utilize the amount during that period.
- By tradition, the repayment or amortization phase in Canada is for 25 years, while the reimbursement period in America has been normally extended to 30 years. In fact, prolonged repayment or amortization phases realize to lesser payments every month, but by and large a soaring interest expense. However, the aim for the borrowers should be to lower the expense of carrying a credit as well as the repayment period and by no chance to augment it.
- Barring a few stray cases of omission, the greatest mortgage term that is obtainable by the Canadian borrowers is a period of five years. This is partly owing to the fact that the functions of the financial institutions are different in different nations. In fact, their roles vary from one country to another. In Canada, banks and trust companies in point of fact retain the finances they organize as a component of their asset portfolio. On the other hand, banks in the United States function almost like loan creators who reserve the mortgages. As the banks themselves are not the real lenders in the United States, longer mortgage terms are easily accessible there - sometimes as long as the amortization or the paying back. This way, the long-standing, self-paying back mortgages are a discrete advantage for the American borrowers.
- Another area of difference in the Canadian and American mortgage rules is the interest deductibility. In the United States, the mortgage or credit interest on the principal house is liable to deduction against any other income. However, barring some restricted situations, the situation is different in Canada. In fact, the issue of mortgage interest deduction has been a closed chapter in Canada since it was first recommended during the brief term of Prime Minister Joe Clark way back in 1979.
In Canada, mortgage payments are made far tax deductions from the actual income made by the borrower during a financial year. As the laws in Canada stipulate that a borrower essentially has to have an income and pay taxes on it to really finance a mortgage, it is significantly more than the simple amount that is liable for payment as interest.