tkhayes 140 #1 March 17, 2009 they don't know how to do anything right....... http://www.cbc.ca/money/story/2009/03/17/canada-banks.html Unbridled Capitalism wins again - NOT! Quote Share this post Link to post Share on other sites
lawrocket 3 #2 March 17, 2009 Indeed. Canada would neither boom nor bust. It will just kinda be. In this climate, it's a nice thing. The banks were, it appears, required to maintain sound lending and business practices. So now Canada has banks ranking 7, 8, 9 and 10. Let's look out. These banks are now too big to fail. They should immediately be broken up into smaller banking institutions. My wife is hotter than your wife. Quote Share this post Link to post Share on other sites
idrankwhat 0 #3 March 17, 2009 QuoteIndeed. Canada would neither boom nor bust. It will just kinda be. In this climate, it's a nice thing. The banks were, it appears, required to maintain sound lending and business practices. So now Canada has banks ranking 7, 8, 9 and 10. Let's look out. These banks are now too big to fail. They should immediately be broken up into smaller banking institutions. I recall hearing a few months ago about one bank in Spain that was apparently not impacted by the current crisis. One of the bank representatives that was interviewed stated something along the lines of "if we didn't understand the financial instruments being utilized then we didn't get involved in the transaction". Weird philosophy huh? Quote Share this post Link to post Share on other sites
GeorgiaDon 340 #4 March 17, 2009 I think another difference is the way mortgages are structured in Canada. I gather from family there that interest rates are adjusted frequently (annually, or even semi-annually), but what changes for the homeowner is the amount that goes towards the principle vs interest, and therefore the term of the mortgage, but not the total monthly payment. So if the interest rate rises, a larger share of each month's payment goes towards interest, and it'll take longer to pay down the principle so the term adjusts. That way, people don't find their payments doubling overnight, and the foreclosure rate stays low. On the other hand, banks are freer to either increase or decrease interest rates, as market conditions change, so they aren't risking being locked in for 30 years at a low interest rate. As a result, and also considering that if they kept rates too high customers would just refinance with someone else, interest rates do adjust down. I think my father is paying about 3% on his mortgage right now. On the other hand, you never really know how long it'll take to pay off the mortgage, it could be 30 years, it could be 25, or maybe 45, but at least you'll never be surprised with an increase you can't handle. American mortgages are fixed term, so if the interest rate adjusts (as in an ARM) the monthly payment has to change, and it almost never goes down. If you can't handle the increase it's foreclosure city, and everybody loses. At first the Canadian version seemed strange to me, but the more I think about it the more sense it makes. Don_____________________________________ Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996) “Education is not filling a bucket, but lighting a fire.” (Yeats) Quote Share this post Link to post Share on other sites
SkyDekker 1,150 #5 March 17, 2009 QuoteI think another difference is the way mortgages are structured in Canada. I gather from family there that interest rates are adjusted frequently (annually, or even semi-annually), but what changes for the homeowner is the amount that goes towards the principle vs interest, and therefore the term of the mortgage, but not the total monthly payment. So if the interest rate rises, a larger share of each month's payment goes towards interest, and it'll take longer to pay down the principle so the term adjusts. That way, people don't find their payments doubling overnight, and the foreclosure rate stays low. On the other hand, banks are freer to either increase or decrease interest rates, as market conditions change, so they aren't risking being locked in for 30 years at a low interest rate. As a result, and also considering that if they kept rates too high customers would just refinance with someone else, interest rates do adjust down. I think my father is paying about 3% on his mortgage right now. On the other hand, you never really know how long it'll take to pay off the mortgage, it could be 30 years, it could be 25, or maybe 45, but at least you'll never be surprised with an increase you can't handle. American mortgages are fixed term, so if the interest rate adjusts (as in an ARM) the monthly payment has to change, and it almost never goes down. If you can't handle the increase it's foreclosure city, and everybody loses. At first the Canadian version seemed strange to me, but the more I think about it the more sense it makes. You seem to have been misinformed. Outside of open and closed mortgages (really defined by whether you are free to pay off the mortgage at any time) there are two types in Canada. Variable rate mortgage and fixed rate mortgage. Fixed rate mortgages have a fixed rate for the duration of the term. Term is generally 5 years, but can be anywhere from 6 months to 10 years. During the term the interest rate is fixed and the interest rate will not change during that period. (Term not to be confused with amrotization period) variable rate mortages are based on Prime Rate and are generally adjusted every three months. Prime Rate goes up, your payment goes up, you do not have a choice in the matter. Prime Rate goes down, people generally keep the same payment and chose to pay down their mortgage faster, but they have the option to pay the lower payment. One can generally convert a variable rate mortgage to a fixed rate mortgage at any time. Variable rate mortgages are generally for 5 year terms but are between 6 months to 5 years. The Canadian banks faired much better than most if not all financial institutions around the world because of the much stricter regulations. However, much thanks must be given to the US. Without the bailout in their financial sector several canadian Banks would have failed. Specially if AIG was allowed to go bankrupt. Quote Share this post Link to post Share on other sites
Andrewwhyte 1 #6 March 17, 2009 Quote Indeed. Canada would neither boom nor bust. It will just kinda be. In this climate, it's a nice thing. The banks were, it appears, required to maintain sound lending and business practices. So now Canada has banks ranking 7, 8, 9 and 10. Let's look out. These banks are now too big to fail. They should immediately be broken up into smaller banking institutions. Actually there were a couple of proposed mergers that were forbidden by the Feds overthe last decade. The banks whined that they couldn't compete with the larger foreign banks unless they would be allowed to merge. A few years later it was noticed that the big five Canadian banks all had better ROI than the larger banks they had cited. Sadly though executive compensation was lower, as befitting smaller institutions. Quote Share this post Link to post Share on other sites
GeorgiaDon 340 #7 March 18, 2009 QuoteYou seem to have been misinformed.Could very well be the case. Talking to my father is an interesting experience, the words are English but the meaning is sometimes whatever reality he's living in at the moment. Thanks for the clarification. Don_____________________________________ Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996) “Education is not filling a bucket, but lighting a fire.” (Yeats) Quote Share this post Link to post Share on other sites
