The Canadian government stopped insuring 100% and 40 year mortgages through the CMHC on October 15th which was supposed to tighten mortgage lending and help avoid a US style housing crash. 100% or $0 down payment mortgages enabled Canadians to buy homes with no money down and many believed that this type of product would cease to exist, however, there are still ways you can purchase a home no down payment as reported in the Vancouver Sun.
There appears to be 2 major ways that home buyers can still get 100% financing for their dream home and they are:
1. Borrowing a down payment
The maximum amount Canadian lenders can provide for a mortgage is 95% of the home’s purchase price to still qualify for mortgage
insurance, which is guaranteed by the federal government (CMHC), however, people are still able to borrow their down payment, either from family and friends or even using their lines of credit or credit cards, and their mortgage will comply with the new federal rules as long as the actual mortgage is no more than 95% of the home’s value. On these mortgages the CMHC, Genworth and AIG will not insure the borrowed down payment, only the 95-per-cent balance of the mortgage.
As far as the federal finance department is concerned, if a cash-back program has the effect of leaving a loan-to-home-value of 95 per cent, “this would not be precluded under the new measures”.
2. Cash-back mortgages
Cash-back mortgages offer the borrower anywhere from 4-7% of the home’s value as “cash back” on closing. Many of the big banks still offer cash back mortgages, and say that the cash is supposed to be used for closing costs or furnishings and they specifically will not allow borrowers to use the cash-back as a down payment. However, a common practice was for people to borrow the deposit from family and friends and then pay them back straight away with the cash-back.
The banks offers include:
The added benefit of cash back does come with a price as these products charge a higher interest rate that will be one or two percentage points over the discounted rate borrowers can obtain for other mortgage products. For example, TD is offering a discounted 5 year fixed rate of 6.14% while the equivalent 5 year fixed mortgage rate with 4% cash back is 7.2% – which equates to almost $10,000 more in payments over the course of the 5 years (not taking into account the cash back).
Brokers have mentioned that zero-down options have never been a big part of his business, so the government’s rule changes were not going to have a huge effect on the lender’s business.
Want us to send you a weekly recap of the latest posts straight to your inbox? (Plus we've been known to send out a giveaway or two.) Sign up for our weekly Friday Roundup.
