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Mortgages in the United States and Canada: The Cross-Border Differences

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As you consider moving from Canada to the U.S. or vice versa, the purchase of a new residence is an integral part of the move.  In some cases, you might consider using proceeds from the sale of your previous residence.  But when moving from Canada to the U.S., foreign exchange rate concerns may be a significant hurdle to overcome. You also may need to finance the property through a mortgage originated in the new country where you are going to settle.

different cross-border mortgages

It is important to understand that mortgages in the United States and Canada have several key differences, including the structure of terms, the mortgage application process, income tax implications, and regulatory rules and mandates. Here are some of the major distinctions:

1. Term Lengths and Amortization Periods

  • United States: Mortgage terms often range from 15 to 30 years, with 30-year fixed-rate mortgages being the most common. The amortization period is typically the same as the term length.
  • Canada: Mortgage terms are usually shorter, often ranging from 1 to 5 years, but the amortization period is longer, typically 25 to 30 years. This means Canadians frequently renew their mortgage terms multiple times over the life of the loan.

2. Interest Rates

  • United States: Fixed-rate mortgages are very popular, where the interest rate remains constant throughout the term. Adjustable-rate mortgages (ARMs) are also available, where the interest rate changes after an initial fixed period of time.
  • Canada: Both fixed-rate and variable-rate mortgages are common. Fixed-rate mortgages have a constant interest rate for the term, while variable-rate mortgages have rates that can change with the prime rate.

3. Prepayment Penalties

  • United States: Prepayment penalties are not as common, and when they do occur they are often applicable for only a few years.
  • Canada: Prepayment penalties are more common. Borrowers typically face penalties if they pay off their mortgage early or make large prepayments beyond the allowable limit.

4. Mortgage Insurance

  • United States: Private mortgage insurance (PMI) is usually required if the down payment is less than 20% of the home’s appraised value. PMI can be canceled once the loan-to-value ratio drops below 80%.
  • Canada: Mortgage default insurance is mandatory for down payments of less than 20%. This insurance is provided by entities like the Canada Mortgage and Housing Corporation (CMHC) and is required for the life of the mortgage unless it is refinanced with a larger down payment.

5. Down Payments

  • United States: Minimum down payments can be as low as 3% for certain loan programs (e.g., Federal Housing Administration (FHA) loans), although 20% is standard to avoid PMI.
  • Canada: The minimum down payment is 5% for home loans up to $500,000 CAD, 10% for the portion of the loan between $500,000 and $1,000,000, and 20% for those over $1,000,000.

6. Income Tax Differentials

  • United States: Under personal income tax rules, If you are eligible to itemize your deductions you can typically deduct all of your mortgage interest, up to a certain amount of indebtedness. If you acquired your home prior to Dec. 15, 2017, you can deduct the interest up to $750,000 if you’re filing taxes as married jointly − and up to $375,000 if you’re filing as single.  In order to itemize deductions when filing married jointly, your itemized deductions (including mortgage interest and certain other deductions) –need to exceed $30,000.  
  • Canada: Mortgage interest on your personal residence in Canada is not tax deductible. 

7. Regulatory Environment

  • United States: Mortgages are regulated at both federal and state levels. Key regulatory agencies include the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA).
  • Canada: Mortgages are primarily regulated by federal bodies like the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC).

8. Refinancing

  • United States: Refinancing is common and can be done to take advantage of lower interest rates, change the loan term, or gain access to home equity.
  • Canada: Refinancing is also available, but may incur prepayment penalties if done before the mortgage term ends.

9. Qualification Criteria

  • United States: Credit scores, debt-to-income ratios, and employment history are critical factors in mortgage qualification.
  • Canada: Similar factors apply, but there is also a stress test that requires borrowers to qualify at a higher interest rate to ensure that they can manage potential rate increases.

These differences reflect variations in financial systems, regulatory frameworks, and housing markets between the two countries.

At Cardinal Point, we maintain meaningful active relationships with firms that provide various forms of financing for clients in both Canada and the United States. Because we operate as a true fiduciary for our clients, we receive no compensation or incentive of any kind for mortgage assistance that might be utilized by our clients in Canada or the U.S.