Real Estate Mortgage Lending in Canada

A mortgage is a type of loan that real estate owners use to purchase fixed property, or improve what they already own. A lien over the property secures a mortgage loan, by allowing the lender to take possession of it if the borrower defaults on their payments.

The word ‘mortgage’ has a bizarre origin as it derives from Old French, and Latin before it. ‘Mort’ means ‘death’ and the word originally meant ‘death pledge’.  In olden days, a death pledge ended when the person making it died. However nowadays, our estate inherits our debts. This is a sober reminder never to borrow more than we can afford to pay back.

 

General Characteristics of Mortgage Loans

 

Mortgage loans involve the borrower providing collateral to guarantee their debt. Borrowers can be individuals, groups of people, or businesses. Lenders may be banks, credit unions, or building societies depending on the country. Loan sizes, maturity dates, interest rates, and payment methods depend on the credit worthiness of the borrower.

If a mortgage borrower defaults, becomes insolvent, or passes away, then their mortgage obligation takes priority over all their other debt. Hence, when we lend money to someone who owns their own home, we should not assume this guarantees their ability to pay us back.

 

Mortgage Loans in Canada – The Facts

 

The Canada Mortgage and Housing Corporation established after World War II to help returning war veterans find housing. Since then, it expanded its role to providing mortgage liquidity, and promoting affordable housing for all. Banks and other financial institutions operate in parallel by providing commercial mortgages, more likely to meet the needs of average citizens.

The commonest commercial type is a five-year, fixed-rate mortgage (as opposed to the variable-rate, thirty-year mortgages in the United States). The Canadian system stood up well during the financial crisis and the ensuing recession. This was in part thanks to tight regulatory controls applied at a national level.

 

The Canadian Mortgage Stress Test

 

The Office of the Superintendent of Financial Institutions released guidelines in 2014 to tighten standards of residential mortgage insurance underwriting. This ‘stress test’ requires that mortgage borrowers with under 20% equity must be able to afford a benchmark interest rate higher than the industry norm. This information is provided by Stonegate Equity Ltd., acknowledged partners on the Calgary real estate market. We are not real estate agents.

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