The Canadian banking system is unlike the States

A lot of people come to me and talk about how they’re worried about the subprime issue in the States and the same thing will happen to us South of the border. However, the fact is that Canada has weathered through the storm extremely well and none of the banks failed or required any sort of bailout, while in the US, about 200 banks have failed since the beginning of the recession in 2008.

The Canadian banking system is actually much more prudent and resiliant compared to the States. Some differences include:

  • Full recourse mortgages – Canadians are fully responsible for their mortgage so other assets and potentially future wages can go towards paying off the mortgage. In the States, it is much more likely that the home will just be foreclosed.

  • Low deliquency rates – mortgage payments in arrears are about 0.3% in Canada vs. about 3% in the US, which is already down from almost 10% in 2010!

  • Different public policies on lower-income housing – the Canadian government does not have policies to encourage homeownership for lower income and less credit worthy borrowers (subprime) like the States did under the Community Reinvestment Act. Instead, the Canadian government provides funding for public rental housing.

    Other significant differences are illustrated below is an infographic from RateHub.

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