US MORTGAGE FOR CANADIANS
Cross-Border Mortgages Have Never Been Easier
Cross-Border Mortgages Have Never Been Easier
The advantages of financing through RBC Bank
There are some very good reasons why you should finance your US property with an RBC cross border mortgage. RBC is Canada’s largest bank and one of the biggest in the world by market capitalisation. They also have a product designed specifically for Canadian’s wanting to finance property in the US.
This is an important feature of a cross border mortgage as it allows you to make payments when the exchange rate is favourable. Watching currency fluctuations is important as it affects the expenses you pay and the income you receive.
Buy your property anywhere in the US and RBC will finance it. The bank finances property in all fifty states across the country.
RBC uses your Canadian credit history and your prior relationship with RBC for mortgage approval so you get the best terms possible on your mortgage.
Choose the term of your mortgage for 3, 5, 7, or 10 years with a 30-year amortization period. This ensures that your repayments are as low as they can get, and if you want to pay your mortgage off sooner you can do so without incurring penalties.
Pay 20% down payment and closing costs rather than making a 100% lump sum payment. You can make lump sum payments when the Canadian dollar strengthens.
Canadians wanting to buy US real estate have three options
Up until recently 80% of property sales to Canadians were cash deals, but as the Canadian dollar has weakened against the US dollar, this is changing.
Whereby you borrow funds backed by the equity on property you already own. This is a good choice since the interest and repayments on HELOCs is often lower and you withdraw money as you need it. It’s flexible, relatively inexpensive and you can keep borrowing up to the negotiated limit as you make repayments.
With the property serving as collateral. Canadian banks won’t offer mortgage on a US property because they have no jurisdiction in the US so they can’t foreclose on the property in the case of non-payment. This means that you will either have to apply to a US bank or use a large mortgage provider such as RBC for your cross-border mortgage.
There was a time when it made sense to pay for your US property with cash but with the exchange rate at around $0.75 to the US dollar, your best bet is to buy the property using a US mortgage for Canadians.
|HELOC||4.2% (prime + 0.25%)|
First National Financial
Street Capital Bank
|5 year variable||1.15% (prime - 1.3%)|
|3 year variable||0.99% (prime - 1.46%)|
|Line of Credit||Starting at 3.00%|
|Equity Loans||Starting at 5.99%|
|Private Mortgages||Starting at 4.99%|
Interest rates are compounded monthly in the US. The interest payment on your mortgage may be tax deductible if you earn an income or collect rent in the US.
US banks will require you to make a down payment of 20% for a property that you plan to live in even if only part time. Investment properties require a 40% down payment. The value of the property is determined as the lesser of the price or the appraisal value. The down payment protects the lender against the property losing value in a declining market. It is not healthy to have a mortgage that is higher than the market value of the property.
In the US you can lock in the term of your mortgage for the full amortization period and get a very competitive interest rate. This is somewhat different to Canadian mortgages. In Canada the mortgage rates for five-year terms are typically lower than those for ten-year terms so borrowers tend to favour the shorter-term mortgages.
The closing costs in the US are split between the buyer and the seller. For the buyer the closing costs vary from 2.5% of the purchase price upwards to 5% and include legal fees and taxes. When you want to sell the property the closing costs are even higher and can cost as much as 8%.
When you own residential property in the US, the law requires you to have homeowner’s insurance. You will pay around $3.50 per $1000 of the value of the property.
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Before you can refinance, you’ll have to get an independent appraisal of the value of your home. You can, however, do some research of your own before you go to the expense of getting an appraisal. Find out how much similar houses in your area have been sold for over the preceding period.
If you are able to access lower finance costs as a result of refinancing your home the cost savings may offset your closing costs. You have to understand the value of the closing costs to make an informed decision on whether to refinance or not.
The general rule is that you will need at least 20% equity in your home to qualify for another mortgage.
Before you consider getting a new mortgage, you should check your credit score and determine what the interest rate will look like given your current financial situation.
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