Financial Channel

Just an article that I read that those lookin to buy homes soon or have bought homes should read. Remember to think far ahead before you get a morgage and not let the prospect of owning a home decide for you or you will get owned.

Right now alot of people with adjustable rate mortgages cant make thier payments because they are going up hundreds of dollars due to these kind of loans. Do you have one?

Foreclosures May Jump As ARMs Reset

This is an American article, Canada doesn't even have ARMs. We have variable rate mortgages, but they are fairly different, most have payments where the amount doesn't change, only the principle/interest numbers. ARMs are also different in that many have special rates for a period, then they go up, and so does the payment, no such thing here. Also, Canada has almost no 'principle only' mortgages, where as these are rampant in hotter U.S. markets. Finally, home prices have grown at a much faster rate in the U.S. than in most of Canada, which also increases the risk of a bigger fall.

Lending criteria has loosened here in recent years, but it's still much stricter than in the U.S. We just don't have the same options to get into trouble like Americans do.

All that said, it does seem that there are people in some Canadian cities who've overstepped, but I still think there is liitle chance of widespread foreclosures here.

Don't try to extrapolate the mortgage issues from USA to Canada. There are a big number of differences, mainly due to the fact that USA you can write off the interest on your mortgage against your taxes. It leads to people being ADVISED (yes, from financial advisors) to take the biggest mortgage they can make payments on. Add in the fact that everyone down there just refinanced to pull equity out and that they use a much looser qualifying criteria on mortgages, and you have a recipie for disaster. Oddly enough, they go through this cycle about every 10 years.

On top of that, you can also just pay back the interest part of your mortgage with no money going into the principle. So a 25 year mortgage term can be extended until whenever.

As long as your paying back your interest, the bank doesn't care. Where in Canada, it is required that the principle be paid down.

Thats exactly the problem, a disaster south of the border could cause major problems for real estate here as well.

funny how it would do that since the markets are not related, only the interest rates have some correlation

Of course the markets are related, it's just not directly.

Ouch! What a trap that could become! There must be people paying their mortgages for decades there!