Think 0% down is a thing of the past? Well, not exactly…
Here is another letter/article from my mortgage lender associate Michael Ledingham. This week he offers insights on “no money down” mortgages which if you follow these things you will know are not technically available due to recent changes in policy from CMHC, as they no longer insure 0% down or 40 year mortgages. These changes are in effect this month.
Another “interesting” week to say the least. I am not even going to comment on it, as people are getting saturated with it I think.
Can 100% financing still be achieved?
2 weeks ago I wrote about the end of the “true” 100% financing programs that were insured through CMHC and Genworth. There are several ways in which you can still achieve 100% financing in creative ways. The most common way I will highlight this week. It is called a “cashback” mortgage. What this means is that a lender will go to 95% loan to value on the home purchase and it will be insured to this value. Upon closing, the lender gives 5% of the purchase price back to the clients as cash for down payment, effectively creating 100% financing for the clients. Client will only need to cover the closing costs. As well, since the insurer is going with a lower LTV than their previous product of 100% financing, they require a slightly reduced credit score to do this.
Sounds great….but what is the catch? Two things you should be aware of. First, the interest rate you pay will be higher, and substantially so. If you had come up with the money from your own resources for that 5% down payment, you potentially could achieve a fully “discounted rate”. A discounted rate is the best rate a lender will give to their best clients and it is discounted off of their “posted rate.” A lender might have a posted rate of 7.27% and a discounted rate of 5.67% on their closed five year fixed rate mortgage as an example. A cashback mortgage gets you the 5% funds you need, but also the higher rate so you end up paying for that 5% over the term of your mortgage. This leads into the second point to be aware of…if you payoff the mortgage before the FULL TERM is complete, you have to payout the cashback portion, plus the penalty. The cashback mortgage can be an effect tool and a means of achieving 100% financing, but as with anything, there are things to be aware of and making a well informed decision is the key!
Hope this helps,
Michael Ledingham – Licensed Mortgage Broker
Tel # 250-755-3014 Ext:224
TF # 1-877-750-3014
Fax # 250-755-1608