How to Buy Canadian When Getting a Mortgage

What makes a lender Canadian?

A mortgage isn't a small financial commitment. With recent U.S. political and trade strife provoking rather intense national pride, many are taking a closer look at where their hard-earned dollars are going to buy as local as possible.

A bank is considered 'Canadian' if:

• It’s regulated in Canada
• It operates primarily for Canadians
• It follows Canadian banking laws
• No foreign entity can take control

Yet, that doesn't necessarily mean it's 100% Canadian, especially if a portion of its shares are owned by foreign investors and some profits flow outside of Canada.

While most mortgage lenders operating in Canada — big banks and non-bank lenders (such as credit unions, trust companies, and MFCs (Mortgage Finance Corporations) — are grounded in Canadian ties, the perception of their level of ‘Canada-ness’ can vary based on three key factors:

• Headquarters. Where is the lender’s home base? A company headquartered in Canada is more likely to focus on Canadian borrowers and the local housing market.
• Ownership. Who ultimately owns and controls the lender? Are they Canadian-based or owned by international shareholders or parent companies?
• Revenue Sources. Does the lender’s profit primarily come from Canadian revenue, or is a significant portion earned from operations in other countries? Some lenders serve Canadian homeowners exclusively, while others generate revenue from multiple global markets.

Breaking down Canada's major mortgage lenders.

There’s no shortage of mortgage lenders in Canada, and they don't all operate the same way.

Big Six Banks. These are the big names you know — like RBC and TD — and perhaps bank with already. As Schedule 1 banks (there are a few smaller ones, too, such as Equitable Bank), they have deep Canadian roots, and many are publicly traded with global shareholders and operations. That means a portion of their earnings comes from and flows to international markets. Under the Canada Bank Act, no single person or group can own more than 10% of any class of bank's shares.

Credit Unions. Locally focused and member-owned, credit unions — such as Vancity (Vancouver) and Meridian (Ontario) — keep profits within their communities. However, they’re regulated provincially, meaning they don’t always have the same national reach (i.e. capital) or mortgage options as banks or other non-bank lenders (such as an MFC).

Trust Companies. Can be either provincially or federally-regulated trust companies. The latter — such as Home Trust or Manulife Trust — often focus on alternative lending, serving borrowers who may not qualify with traditional banks. Most are Canadian-owned, while others have foreign investors. Like banks, many also take deposits and offer other financial products, such as mortgage loans.

Mortgage Finance Companies (MFCs). Non-bank lenders that focus exclusively on mortgages. The top MFCs are federally regulated and Canadian-owned — like MCAP, First National, and True North Mortgage's in-house lender, THINK Financial. Since MFCs aren’t deposit-taking institutions, they often specialize in more flexible mortgage solutions.

Does foreign ownership or revenue mean a bank is less Canadian?

Regardless of foreign market participation, our big banks are certainly considered Canadian.

If you ask an economist (or a bank), this international participation likely helps to ensure our banks are 'strong' through diversification. Attracting foreign investment or spreading to other markets in the search for continued growth could be considered essential to Canada's economic well-being.

However, that same international activity can also increase management and risk exposure. For example, when TD's U.S. operations were hit with violating money-laundering regulations, the $3B in penalties (and other repercussions) were mostly contained to its U.S. side of business, but still impacted the bank's overall financial performance, seen in a decline in quarterly profits and a drop in share value.

Should Canada allow more U.S. banks?

Newly (reinstalled) U.S. President Trump recently complained that U.S. banks aren't allowed in Canada. Is this true?

It depends on what you define as a 'bank.' More than 60 domestic and foreign banks operate in Canada. With 16 U.S.-based banks operating under Schedule II or III (including CitiBank, Capital One, Wells Fargo and Comerica Bank) they make up half of all foreign bank assets in Canada.

But Schedule 1 banks (like our big banks)? Even Canadian bank wannabes have to work through years of application and regulatory hurdles to become this type of bank — and in the end, most are still refused designation, for various reasons.

Here are some key restrictions for U.S. banks setting up in Canada:

• Retail banking (everyday deposits and checking accounts) is generally not allowed for foreign bank branches unless they have a Canadian subsidiary.
• Deposits under C$150K are restricted for foreign bank branches, which limits their ability to compete in the personal banking market.
• All deposit-taking U.S. banks in Canada must be insured by the Canada Deposit Insurance Corporation (CDIC) if they offer eligible deposit accounts.

Canadian banks are boring, on purpose. Beauty, eh?

The Canadian banking system is considered one of the most secure in the world, due in large part to the robust oversight through a single government authority and regulator, OSFI (Office of the Superintendent of Financial Institutions).

Our 'too big to fail' banking system is as Canadian as poutine (along with "that's a beauty, eh?" a phrase coined over 30 years ago by SCTV's Bob & Doug McKenzie’s Great White North, as a Canadian expression to say something's great). And it delivers a dramatically reduced ability to serve up significant financial drama and economic impact, nationally or on the world stage.

The U.S. banking sector, on the other hand, boasting thousands of medium to large banks, is overseen through a fragmented regulatory system of multiple federal agencies and state regulators and has demonstrated a higher risk of fallibility (aka financial drama) over the years.

Allowing more American banks into the Canadian market simply to satisfy another country's demands would likely require substantial regulatory concessions and may introduce potential stability risks into our currently well-managed banking sector.

It's a mortgage, not maple syrup. But you do have some local choices.

As you can see from the chart above, the big Canadian banks can have a mix of international shareholders and typically do some business in other countries, like the U.S.

A 100% local Canadian mortgage choice would mean choosing a credit union, trust, or MFC — all considered 'non-bank lenders' but are still stringently provincially or federally regulated (MFCs are regulated by OSFI).

Ultimately, all Canadian banks are Canadian at heart, so it's a matter of choice and where you feel more comfortable (and patriotic) placing your mortgage money.

At True North Mortgage, we broker for all kinds of Canadian lenders, big, small and non-bank. We're here to help you get your best rate and mortgage fit, which we consider our patriotic duty.

Contact our highly trained, unbiased brokers today (in your preferred language) for great advice and a simple, free process. You can apply or contact us from anywhere you are in Canada.