I had nanaimo bars today!
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One of my fondest memories of my elementary school years was a school trip to the the Hershey chocolate factory in Smiths Falls Ontario. Years later I took my own kids there.
The chocolate factory closed in 2007 and was deserted until 2013 when a major Cannabis company, Canopy Growth, set up its HQ and edibles production there. With the challenges currently facing the legal cannabis market in Canada, that facility closed recently.
Good news today as Hershey has announced it has repurchased the facility and will resume some operations there. The link below provides details. So rare these days for US firms to expand manufacturing in Canada so this is why I am sharing this story.
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Canada and US economies now moving in different directions. Second quarter Canadian GDP fell and unemployment is increasing whereas US economy continues to barrel ahead. Canadian stock market reacted positively as future interest rate increases probably not needed as Canada appears to be headed into a recession.
I’m guessing that’s due to 5 years being the longest you can lock a mortgage rate in in Canada so a lot more people are feeling the impact of higher borrowing rates in Canada.
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And many Canadians are on variable interest rate mortgages rather than multi-year fixed rate mortgages. Compounding our housing crisis is the fact that some developers are now delaying construction projects because of THEIR higher level of financing costs.
What is the consumer benefit of only allowing a 5 year fixed mortgages? The business interest seems obvious, and maybe that is decisive.
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Canadian banks are an oligopoly so they call the shots
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I thought that the Canadian 5-year mortgage structure scheme was an artifact of
- Canadian mortgages being kept on the banks’ books (as opposed to being securitized as they are in the US);
- GIC (CD) deposits being insured by the government only out to 5 years, making longer-term deposits unattractive; and
- asset-liability matching pressures arising from the prior two points.
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The preceding post is correct.
Canadian banks wouldn’t want to lock into 30 year fixed interest commitments without support. US banks probably wouldn’t offer 30 year mortgages either without federal support.
Hope our Intelligence on this is solid. Modi does need to be challenged on this if true.
Yeah, an unbelievably bold action if true. Tricky spot for the US and UK though, India is such an opportunity in the rivalry against China.
Wait so you go and buy a house, say it’s 600k, you put 100k down so 500k to go… and you have to pay this off in 5 years!?
Re-apply? Meaning the bank expects there to still be principal left at the end of 5 years but you theoretically would sell the house to pay it, but in practice you just re-finance it with a new, smaller mortgage?
No, your fixed rate is for 5 years after which it turns into a variable rate mortgage. Every 5 years you can lock in your mortgage rate for another 5 years. I believe it has to do with the way mortgages are govt backed in Canada vs the US
Well when you put it like that it sounds stupid. But yes lol. They amortize your payments over say 25 years, then give you a loan for a specified term, often 5 years. End of the term, you get a new mortgage at current rates.
Our mortgage interest rate calcs are also a tiny bit different, calculated biannually.
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Deleted my posts since you clearly know better and my Canadian relatives explained it poorly.
They also really like to complain that “Canadians don’t own land, they rent it from the government.” Which if they’re to believed, means there is no inheritance of land (perhaps a first right of refusal to rent.)
No that’s just stupid. We own the land as much as everyone. They’re just saying we pay taxes, which shouldn’t be a surprise.
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Lol. Well they’ve repeated that claim about 10x to me. But they’re all ultraconservative/MAGA/QAnon types. Even the Canadians. They love stuff like the Freedom Convoy and No Step on Snek.
Edit: Lol I looked it up. It appears that legally it is a “land lease” which you do pay for with your property tax. So semantically they’re correct, in the sense they they can accurately complain about it, with it making no significant impact to their lives.
One thing I don’t know if they do in the US is variable rate mortgages. The term, i.e 5 years is fixed, and the payments are fixed, but the amortization period floats longer or shorter depending on interest rates.
On average, you pay less than fixed rate. But people ignore the ‘on average’ part. And with rates going up fast right now, they’re mortgages are turning into 30-50 year mortgages and longer. Which results in the banks increasing mortgage payments to bring the amortization down to whatever hard cap they use. People are getting notified with 'your mortgage payment is going up by $2k per month. It’s a problem, but not big enough that it’s affected the housing scene yet.
On that last point, I believe it’s a combination of:
- In the US, it’s common for mortgages to be securitized – bundled, partitioned, and sold to investors – whereas lenders usually retain the risk in Canada.
- In Canada, there’s a limit on the amount of time the government will insure the Canadian equivalent of Certificates of Deposit. This results in a concentration of such deposits at 5-year terms.
- Asset-liability matching pressures cause the 5-year term for interest rates to be standard.