Partner and Banking and Debt Finance expert Michael Feldman and Associate Sharon Au have co-authored “Why We Don’t Have Twenty-Five Year Mortgages in Canada,” an article for the August issue of the National Banking Law Review. Michael and Sharon discuss the common commercial practice in the Canadian mortgage market of offering five-year mortgages and how the prevalence of this practice affects the development of a market for Residential Mortgage Backed Securities. Below is an excerpt of the article.
A young couple have found the house of their dreams and start looking for a mortgage that they can pay off over 25 years. Every mortgage lender they talk to is willing to offer them a mortgage with a payment schedule that amortizes over 25 years, but none of them are willing to offer a mortgage that fully matures in 25 years. In fact, very few of them are willing to offer a mortgage that matures more than five years from the mortgage date. Why can’t this couple find what they are looking for?
Sometimes, a local commercial practice becomes so entrenched that it is difficult to imagine the practice being any other way. Such is the case with the predominant practice in Canada of maximum residential mortgage terms of five years even though amortization periods generally range from 25 to 40 years.
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