Have you recently decided to invest in Canadian real estate? It’s completely understandable if you have. After all, Canada is one of the most stable real estate markets in the world. Despite the global recession, Canadian home prices have increased 5% every year since 2000, according to a report released by Re-Max. Plus, it’s generally a nice place to live with cities like Toronto, Calgary, Vancouver, and Montreal frequently landing spots on the world’s nicest cities lists. But as a foreign investor, you have some unique concerns when it comes to landing a mortgage and figuring out the finer points of home financing.
Funding Sources: Self-Financed
How you finance your home purchase in Canada will depend on several factors. If you have enough money to buy a house outright, you can fund the mortgage on your own without using a bank.
Since you’re a foreign investor, bringing in large sums of cash from another country can look suspicious and may hold up the mortgage process. Your personal money, from a U.S. bank, will need to be transferred to a Canadian account. Since foreign investors are allowed to purchase property in Canada, and even borrow money to do so, this shouldn’t be too much trouble. However, the bank will need to verify the source of your funds to ensure the money isn’t being laundered or coming from illegal sources.
It’s important to keep in mind that the home prices you view for Canadian property are in Canadian dollars.
Funding Sources: Bank Financing
If you don’t have enough money saved to buy property outright, you’ll need to get a mortgage in Canada. Thankfully, this is entirely possible since Canadian banks do offer mortgages to non-citizens and non-residents alike. However, the loan-to-value ratio has an upper limit of about 65% for non-residents. This means you can only borrow 65% of what the house is worth. Conversely, this means you’ll need to make a down payment worth 35% of the home’s value. Bear this in mind when both saving and evaluating home prices.
If you co-sign the mortgage with a Canadian citizen, however, you can get a loan that’s worth up to 75% of the property’s value, decreasing your down payment amount to 25%, so that’s something to consider if you have friends or family in Canada that would be willing to take on this risk with you.
Understanding the Terms of Your Mortgage
As always when getting a loan, you should pay attention to the interest rate you’re offered. Even if the initial loan amount covers a large portion of the mortgage and you’re pleased with the loan-to-value ratio, a bad interest rate or set of terms and conditions could make repaying the loan extremely difficult.
A fixed rate mortgage means the interest rate is set for a specified term and cannot fluctuate. The interest is compounded semi-annually, and you will pay the same amount every month for the first five years of the mortgage or for however long the initial term is.
A variable rate mortgage means the interest rate fluctuates on the first of every month. You’ll pay the same amount each month for the first five years of the loan, but how much you’re actually paying toward the principle or amount borrowed will vary depending on the bank’s current interest rate.
You have a lot to think about when it comes to securing a mortgage in Canada. As a foreign investor, you still have a variety of options, and it’s a good idea to explore them all before signing on the dotted line.
Remember, we are here to help you make this process a stress free one !