# differential mortage rate for non residents. explanation?



## ilecomte (Sep 24, 2015)

Hello,
I have gone through a puzzling and frankly hard to believe experience.
As a non resident Canadian (although Canadian citizen), I was granted a mortgage to purchase a home. However, when I actually submitted the letter of purchase to the Royal Bank, I was told that the rate I was quoted beforehand of 2% was to be increased to 2.24% for the following reason: (I quote)
'The majority of countries apply a withholding tax to certain types of payments (most commonly being interest and dividends) made by a resident of their country (i.e. the payer is resident) to a non-resident (i.e. the recipient of the payment is a non-resident). No country requires the payment to be grossed up. RBC has made the policy decision to gross up the interest rate charged to the client instead of receiving a lower net interest rate on the mortgage to a non-resident as compared to what RBC would earn on a mortgage to a Canadian resident.
'It is a standard procedure that all banks must follow for taxation purposes and as mentioned to you before I can only speak on behalf of RBC and cannot explain why your other bank is not following protocol.
In my particular case, I was told that residents of countries which have an tax agreement with Canada (including Brazil and Indonesia, among others), will be charged extra.'
After I consulted 3 other banks, no one ever mentioned that and no one certainly applied this rule to my purchase.
Can you tell me more about this 'law' and which are the countries (and their residents) which are affected by this mortgage rate increase to cover tax withholding?
Thank you


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## Stevesolar (Dec 21, 2012)

Hi,
Sounds more like the bank wants to charge a higher interest rate to non-residents - as they see them (probably rightly) as a higher risk customer.
If you are resident and live in the mortgaged home - then you have much more reason to pay the mortgage each month.
Non-residents obviously reside overseas and could stop paying the mortgage and continue to live in their current location.
They are also seen as being potentially richer and might be renting out the mortgaged property for a profit - the bank therefore want to share in that profit!
Anything else they tell you is frankly a smokescreen at best!
Cheers
Steve


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## ilecomte (Sep 24, 2015)

*is there such a tax law between Canada and other countries?*

Hi Steve,
Thanks for the comment. 
Well, non-resident have to give a down payment of 35 percent on any purchase. Then they have to add one year of school and municipal taxes which they pay every month, through lending institution.
While my son (a resident) is living in the property, should I fail to make my payments, I believe, based on a table provided to me by my notary listing all the penalties, deductions and charges that the bank would add to my mortgage, that the bank makes a profit. The risk you and i see in such a transaction is in fact non-existent, apparently.

'My concern is more: is the Royal Bank unique in complying to this tax agreement between Canada and countries of residence of buyers? Is it a scam, or truly based on a regulation? 
I have spent a lot of time trying to get a clear explanation from this bank, what I posted in my first post is the clearest it has ever been explained to me.

Isabelle


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## Stevesolar (Dec 21, 2012)

Hi,
Well - if the bank were paying you interest on savings - then I could fully understand the withholding tax on interest earned.
Where the bank is lending you money and charging you interest - then it is them making the profit - so your tax status is largely irrelevant to them.
I still believe it is still pure profiteering - disguised behind some obscure or nonexistent "law"
Cheers
Steve


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## ilecomte (Sep 24, 2015)

*where to get more info on this 'law'?*

Hello,
Any hint on where to get to see the text of this law, and the countries it applies to besides Brazil and Indonesia? i assume it exists and that such a large bank as the Royal Bank would shy away from lying.
I might be naive though.
Thank you
Isabelle


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## EVHB (Feb 11, 2008)

"add one year of school and municipal taxes which they pay every month, through lending institution"
That is called property taxes. I pay that twice a year (don't have mortgage).


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## ilecomte (Sep 24, 2015)

*monthly payment*

Hello,
Yes, property taxes apply to everyone. The difference in my case, as a non-resident, is that the bank adds it to my mortgage payments, every second week. To make sure that I indeed pay these taxes, I guess
and I needed to provide a proof that the funds were indeed already in my account to cover payments for the full year, thus a significant amount to keep in my account for a full year, one year in advance.

Not a very big deal, but important to know when you transfer your down payment to Canada.
Isabelle


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## WestCoastCanadianGirl (Mar 17, 2012)

RBC are going to gouge you, plain and simple.

They figure that if you don't like their policy then fine... good luck finding a similar mortgage elsewhere that has fewer strings attached.

I'd say that if you're unable to get out of your RBC mortgage then hold tight and when it's up for renewal, shop your renewal around to the other banks to see what you can get... they (the Ginormous Banks) all want your business (after all, you're potentially a steady source of income, provided you pay up as agreed) and you'll have some leverage to use in your favour - i.e. you'll likely be able to renew with RBC so you can use that as a backup plan when negotiating with TD Canada Trust/CIBC/Bank of Montreal... when you go to renegotiate, the other banks will ask you what RBC is charging and then look to see if they can (hopefully) better their rate for you. Keep in mind, though, that you might have to eat some administrative charges etc initially, in order to get a better rate, so consider that when you look to renew in the future.

Good luck and congratulations on your new home purchase!


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## ilecomte (Sep 24, 2015)

*got another mortgage*

Hi,
I did get a mortgage elsewhere, where no such law was ever mentioned. So something is clearly unclear with the Royal Bank.
I am afraid such practices will extend to other banking institutions, using some obscure law, which I am still looking for: I need to see it black on white
Thanks
Isabelle


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## WestCoastCanadianGirl (Mar 17, 2012)

If you're up to renew and you can't (for whatever reason) do it yourself, you might want to engage the services of a mortgage broker... he/she work on _your_ behalf and not for the big banks.

S/he may be able to offer advice as to what you can expect from the banks in terms of interest rates for someone in your situation (non-resident Canadian owner of a home that your son lives in).


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## ilecomte (Sep 24, 2015)

*good advice*

Thanks
Good advice. 
My broker also got to find out.

Isabelle


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