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Are Canadians adding Debt to Pay Cash for Properties in the US

May 16, 2013 - Updated: May 16, 2013


While the US house prices have depreciated significantly following the 2008 housing market crisis, the Canadian real estate market is still overvalued. On average, home prices in Canada are almost two times higher than the US home prices. The lucrative real estate market in the US is luring Canadians to go on a property-shopping spree in the US.



To finance properties to the south of the Canadian border, Canadian nationals usually seek mortgage loans from US or Canadian banks. The mortgage options vary from person to person. While most of the prospective Canadian buyers consider obtaining debt from Canadian banks or financial organizations as the most viable option for financing their purchases in the US, a significant number of customers with established US credit history borrow from US lenders. 



US Mortgage for Buying US Properties



Before the 2008 housing market meltdown in the US, US mortgage loans were easily available to Canadians looking for funds to buy rental or vacation properties in the US. However, with tightening of financing regulations, the US banks and financial institutions are currently not too eager to lend to foreigners. Only foreigners with a good US credit history are eligible for mortgage loans. The best option for a Canadian seeking for a US mortgage loan would be to visit a Canadian bank that has subsidiaries in the US.  



There are several advantages of financing your US property with an US mortgage loan. As loan is secured to your home in the US, your property in Canada will remain unaffected in case of foreclosure. Moreover, your credit rating back home will not suffer if you fail to pay off your US loan. In USA, interest on US mortgage loan is tax-deductible. Hence, you can save taxes on rents earned from your US property.



There are certain disadvantages of US mortgage loans that prospective borrowers should take into account. The mortgage origination fee in the US is 1 to 2 per cent of the price of the property, which is significantly higher than that on a Canadian mortgage. Given the higher risk of lending to foreigners, US banks usually charge higher interest rates on foreign national mortgage.



Canadian Debt for Purchasing US Property



However, most Canadians prefer financing real estate properties in the US with a Canadian debt. They can obtain a secured or unsecured loan from any Canadian lender. The Home Equity Line of Credit is a form of secured loan that allows a borrower to use maximum 80 per cent of his/her equity in the Canadian property to obtain finance for purchasing a rental or vacation home in the US. Secured loans attract a lower interest rate and borrowers enjoy a higher credit limit.



People with a good Canadian credit score are eligible for unsecured loans. However, the credit limit is lower than that for a secured loan. Moreover, these high-risk loans attract higher interest rates. An advantage of obtaining a Canadian debt is that both secured and unsecured Canadian loans used for financing real estate purchases in the US offer protection against the fluctuating exchange rates between the US and Canadian currencies.



Author Bio:

Helen Prasad is the Co-Founder/Business Development Manager at In her opinion, great investment advice can play an important factor in our everyday stressful lives, so people need to be more aware and detail-oriented.

Tagged with: toronto real estate loans mortgages condos houses for sale towns remax west vincent la fiura blog
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Vincent La Fiura
Toronto Real Estate, Condos, Lofts, Townhouses, MLS Broker

Phone: 416-769-1616
Fax: 416-769-1524


RE/MAX West Realty Inc.
Brokerage, Independently Owned and Operated

1678 Bloor Street West, 4th Floor
Toronto, Ontario. M6P 1A9.

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