While there are many similarities between mortgage loans in the U.S. and in Canada, there are also some big differences. If you’re planning to purchase a vacation home, primary residence or investment property in the United States, you’ll want to get familiar with these differences so you’re not caught by surprise.
One thing to keep in mind: If you plan to use a mortgage to pay for part of the purchase price of a U.S. home or property, you’ll likely need to get that mortgage through a U.S. financial institution.
You can also use cash or borrow against the equity in your Canadian home (of course, Canadian funds will need to be converted to U.S. funds in this case).
Getting a mortgage in the U.S. is different than in Canada
Compared to obtaining a mortgage in Canada, a U.S. mortgage:
Even so, most of the basic underwriting criteria is pretty much the same as in Canada, like good credit history, ratio of income and current debts.
May have higher fees and up-front costs. These costs can include appraisals, survey fees, property inspections, title searches and lender review fees.
One of the key differences between Canadian and U.S. mortgages is the length of the term: In the U.S. your mortgage term spans the length of the amortization period. So at the end of the term, the mortgage will have been paid in full.
Canadian mortgages also have an amortization period, which determines the total length of your mortgage, but the mortgage will most likely have a number of shorter mortgage terms within the amortization period.
Mortgage terms establish the interest rate and mortgage conditions for a set period of time and are re-negotiated throughout the amortization period in Canada.
Comparing mortgages on both sides of the border
Use the table below to better understand the differences between U.S. and Canadian mortgages.
||MORTGAGES IN CANADA
||MORTGAGES IN THE U.S.
- Mortgage amortization periods are typically up to 25 years
- The mortgage term typically ranges from 15-30 years
- Shorter length mortgage terms are negotiated throughout the amortization period and range from 6 months to 10 years
- At the end of each term, a new term length and interest rate are negotiated.
- In general, the longer the term, the higher the interest rate.
- Mortgage terms can either be fixed (interest rate doesn’t change over the course of the term) or variable (rate changes as the prime rate changes).
- The mortgage does not need to be renegotiated at any point during the term.
- At the end of the term, if all payments have been made when scheduled, the mortgage is fully paid off.
- Mortgage interest rates can be either fixed or adjustable:
With a fixed rate mortgage, payments will remain the same for the entire term of the mortgage.
With an adjustable rate mortgage, the rate stays the same for the first 3 to 10 years, after which the rate may adjust annually for the remainder of the amortization period based on the market interest rate changes.
|End of mortgage term
- At the end of a term, you can:
a) Pay off the balance of the mortgage,
b) Renew the mortgage with your current lender, or
c) Renegotiate with a new lender.
- The provisions of the mortgage stay the same throughout the mortgage term and don’t need to be renegotiated.
- Pre-payment opportunities are set out in the mortgage agreement and vary depending on whether your mortgage is open or closed- rate.
- An open-rate mortgage lets you pay off your mortgage at any time without penalty, but interest rates are generally higher.
- With a closed rate mortgage, there are penalties for pre-payment outside of the established pre-payment opportunities. For example, you may be able to increase payments up to 10% per year without penalty.
- Most U.S. mortgages can be paid off in full or additional payments can be made at any time without penalty.
- You may be able to switch to a different type of mortgage without reapplying, but you could pay a penalty.
- If you want to switch to a different type of mortgage with the same lender (like from a fixed to an adjustable rate mortgage) most U.S. lenders will require you to apply for a new mortgage, go through the application process again, and pay the associated fees.
- Interest on your mortgage payments is not tax deductible.
- Interest paid on a mortgage on residential property may be deductible on a U.S. federal tax return1
Your next steps
The good news is that with BMO Harris Bank N.A., you can apply for a mortgage using your Canadian credit history and Social Insurance Number (SIN) if you don’t have a U.S. credit history or Social Security Number (SSN).2
The best place to start your application for a U.S. mortgage is in Canada with your BMO Private Wealth professional. They can help you understand and navigate the U.S. mortgage process.
Learn more about U.S. mortgages from BMO and talk to your BMO Private Wealth professional today!
This information is not intended to be financial advice. Please talk to your BMO Wealth Professional about your specific situation and needs.
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Not all products and services are available in every state and/or location. BMO Harris does not provide mortgages in New York State. BMO Harris provides mortgages in Texas but does not provide refinancing.
1 BMO Harris does not provide tax or legal advice. You should consult with a tax advisor for information regarding any tax impacts associated with your mortgage loan.
2 Applicant must meet one of the following eligibility requirements: New or existing Private Bank (U.S.) or Private Banking (Canada) client; new or existing Premier Services client; new or existing depository client (including trust accounts titled in the name of the Applicant) at BMO Harris Bank N.A. or deposit account(s) at Bank of Montreal.
In the U.S. banking products and services are subject to bank and credit approval and are provided by BMO Harris Bank N.A. Member FDIC.