0% down mortgages over?

[annof]

Are the 0% down mortgages over? I am very curious is it now possible to get a mortgage with 0% or 5% down? Any thoughts?

[trent]

I don't think any sane financial institution will offer 0% down mortgages in a real estate market that is rapidly going down. Look at the sales in major Canadian cities like Toronto, Vancouver and Calgary for example, and the picture is not pretty.

The Toronto Real Estate Board released their October 2008 report and the prices are down 13% year-over-year. Furthermore the sales declined 38%! This is an outright crash.

I think that in a very near future Canadian will find out that it's hard to get a mortgage even if you have 20% down. But who am I kidding, what percentage of Canadian homebuyers have 20% downpayment? The answer is close to none!

[Canadian]

The Canadian housing market just started crashing down, and I don't think this is a good time to buy. I'm looking to buy a property in Toronto, but I won't touch anything until the prices come another 30-40% down from here. many people think that this will never happen, but this is just a wishful thinking of homeowners who overpaid for their homes and will soon find out that they are underwater with their mortgages.

[bullish]

I'm sure you can still get a mortgage with 0% down in Canada. The reason for that Canada never had real estate bubble like the one US had (Ok with a few exceptions like Vancouver).

[trent]

I'm sure you can still get a mortgage with 0% down in Canada. The reason for that Canada never had real estate bubble like the one US had (Ok with a few exceptions like Vancouver).

Well banks are stupid, but not that stupid. Just show me a bank in Canada that will give you 0% down mortgage now, when even the most stubborn home owners already admit that the prices are headed down. Let's assume that the prices will go down only 20% from current levels, this means that a homeowner with 0% downpayment (0% equity in the house) will be 20% underwater. If the bank has to foreclosure on such property it will have to sell it for 10-15% below market, so the bank will lose a minimum of 30% on this mortgage. I don't think any bank will like such a deal.

[dreamy]

I don't think you can get a mortgage with less than 20% down. With the credit crunch and all 0% down is ancient history...

[Canadian]

I don't think you can get a mortgage with less than 20% down. With the credit crunch and all 0% down is ancient history...

You still should be able to get a mortgage from Canadian bank if you have more than 5% down and with no more than 35 years of amortization. This might change soon though.

[bullish]

You still should be able to get a mortgage from Canadian bank if you have more than 5% down and with no more than 35 years of amortization. This might change soon though.

This might change soon, how?

[Steven]

I guess he was saying that some banks might refuse to give mortgages with only 5% down. To me 5% down seems like ridiculously low, and in my opinion a downpayment should be a minimum of 15%.

[MortgageOpolis]

Hello,

As crazy as it may be... 100% financing is available with a bit of a twist.
Some lenders are offering Cash Back mortgages up to 7%, but, the interest rate is higher for this product. The higher rate is how the lender gets compensated for lending you the Cash... you don't make a separate loan payment!
A Cash Back mortgage credits a borrower a percentage of the purchase price at closing which can be used as a down payment for the purcahase provided CMHC mortgage insurance guidelines are met.
Tip: You can withdraw up to $20,000 of your RRSP's tax free for a down payment if you haven't owned a home as a principal residence in the past 5 years. Contact me for more info. on this program.

Take care,

just apply we'll do the rest!

[trent]

Hello,

As crazy as it may be... 100% financing is available with a bit of a twist.
Some lenders are offering Cash Back mortgages up to 7%, but, the interest rate is higher for this product. The higher rate is how the lender gets compensated for lending you the Cash... you don't make a separate loan payment!
A Cash Back mortgage credits a borrower a percentage of the purchase price at closing which can be used as a down payment for the purcahase provided CMHC mortgage insurance guidelines are met.
Tip: You can withdraw up to $20,000 of your RRSP's tax free for a down payment if you haven't owned a home as a principal residence in the past 5 years. Contact me for more info. on this program.

Take care,

just apply we'll do the rest!

This is interesting, after all the trouble over-leveraging brought to the US and world economies, some people (read banks) never learn. So answer me this what happens if somebody buys a house with 0% down and the price of this house goes down 20% a year from now? I'll tell you what happens, chances are that whoever bough the house with 0% down didn't have any savings (that's why it bought with 0% down). A year later the proud homeowner won't have any equity in his house and his mortgage will be much higher than the house is worth. Chances are that this homeowner will simply default on his mortgage (job loss, no savings, not willing to pay for depreciating asset, etc) and walk away from the house. Now the bank have to foreclose, and sell the house for 10% to 20% less than market price, which is already 20% down. So at the end the bank will take a loss of 30% to 40%.

Does this sound like a good deal for the bank to you?

[MortgageOpolis]

Your response would be valid if you were purchasing a home purely as an investment.. like a stock option. However, when individuals purchase their first home.. it's usually because they want to OWN a home and not flip it when prices go up, or sell it when the value drops. Personally, I've had a property that dove in price from $105,000 to $42,000 in 3 years and as timing had it, we were relocating. I considered walking away, but, thought otherwise because of the impact on my credit and future borrowing capacity. We decided to rent it, which just covered the mortgage payment. We sold 8 years later for $148,000. Not only did we make a $43K profit on the sale... the renter paid down our mortgage $30K! My point is that home values go up and down and as long as you're willing to ride it out... you should be okay.
Your response to individuals with zero downpayment, is ignorant in that you're assuming they're irresponsible borrowers. Many professionals such as doctors, lawyers, teachers, etc. graduate from school without any savings, only a good paying job. I've had 2 clients default on their mortgages this year, one individual had $40K down and the other had $80K down. I've yet to have any of my clients who bought with Zero down, default on their mortgage because they do have to have good credit, good employment and they're not short sighted. They realize their home is primarily just that.. their home. Secondly, realestate is an investment and over the long term, property will actually appreciate... it's cyclical like the stock market. Have a look at what is happening in the stock markets... investor's are selling because the value of their portfolio's have plummeted. They lose actual cash the moment the sell! The golden rule when investing is buy low and sell high, not the other way around.

Take Care,
Dave

[trent]

My response that buyers with 0% down are irresponsible is not ignorant, and I stand by it. The reason the downpayments exist is to protect the bank from swings in the market (in case the borrower defaults and the bank has to foreclose) and to make sure that if the borrower walks away he/she loses the downpayment (this makes it harder to just walk away compared to the moronic attitude of "I don't have any equity in the house anyway so if I walk away I lose nothing").

We are in this economic mess exactly because of mortgages with 0% down. You obviously have a vested interest in propping the perception that irresponsible borrowing is fine, but soon enough very few Canadians will be able to qualify for mortgage as banks return to more stringent lending standards. When this happens the real estate prices will crash beyond anybody's expectations.

You have a good day.

[MortgageOpolis]

You're comparing apples and oranges when comparing the US real estate market, which is not government regulated, to the Canadian market, which is highly regulated. Lenders are continually being audited to make sure they are compliant within the industry. The reason for the melt down in the US, is due to the irresponsible lending practices of their sub prime mortgages and deregulation. These mortgages were granted to individuals with little qualification, basically on a promise to repay, which is significantly different from how Canadian lenders approve mortgages. The Canadian sub prime mortgage market made up only 5% of our entire mortgage industry... a far cry from the 30% the US had. The US sub prime mortgages were funded at or above the value of the home, by as much as 30%... individuals would receive $130K when purchasing $100K home. Many of these mortgages were designed with balloon payments, where the borrowers had low mortgage payments in the beginning years of their mortgage term, and larger payments in the later years of the mortgage, which adversely affected the borrower's capacity to pay. Canada NEVER had such a mortgage product!
Canadian lender's have mortgage insurance (CMHC/GE/AIG) in place to protect their money when lending above 80% of the value of a property and sometimes require it below 80% depending on the strengths of the borrower (credit, income, etc.) All 3 mortgage insurer's in Canada are positioned very well with capital, even AIG Canada (a division of AIG US, which received an $80B bailout)! The Canadian government has bought some of these mortgages from CMHC ($25B and $50B) to add additional strength to the Canadian mortgage industry... in no way is it a bailout! The proof that it is NOT a bailout: Genworth and AIG would be in a world of hurt if it was, which they are not... not at all!
We are in this economic mess exactly because of mortgages with 0% down. As long as the banks and lenders can obtain mortgage insurance the taps stay on. And as I pointed out, the mortgage insurers' are very strong.. they're not going anywhere. Remember it was the Canadian government who rescinded the 100% mortgage and 40yr amortization as a precautionary measure... if it was up to the insurer's and lender's.. we'd still have them because they worked great! That is why some lenders are offering cash back mortgages, which can be used for 100% financing. Most 100% LTV purchasers are not irresponsible, currently less than 0.25% are in default, which is the same as mortgages with larger down payments, this is the average of our current decade. The average through the mid 90's was 0.50%... source - Canadian Bankers Association.
You're correct regarding one thing though... I do have a vested interest in 100% mortgages and actually all mortgages regardless of loan to value as a mortgage broker. My intent is to provide factual information about Canadian mortgages, so individuals can make informed decisions about their financing. Whereas your opinions might suggest you are bitter because you can't obtain a mortgage. After all, one just needs to read some of your previous posts of gleeful anticipation waiting and wanting house prices to fall. No home owner wants to see their home value decline… that’s like owning a bunch of shares in company and wanting them to plummet!


Take care.

[trent]

For me a mortgage with 40 year amortization and 0% down is equivalent to a subprime mortgage as far as the risk of default is concerned. Everybody in Canada thinks that we are somehow special and we'll avoid the housing meltdown plaguing almost all developed economies. If you insist on comparing Canada and US then comment on the fact that both the median price and the price per square foot in Canada are way above that of the US. How about the fact that most major Canadian cities are overbuilt which inevitably leads to decline in prices?

Obviously I or nobody else for that matter will be able to convince you that close to double digit yearly rise in prices is unsustainable while real incomes fall. You are right that real estate is highly cyclical and the facts are that transactions are falling with breathtaking speed, and prices will follow shortly after. A year from now property values will likely be at least 30% down from current levels.

Now answer me this, why would anybody buy in a crashing real estate market? Why not wait for 10%, 20%, 30% or lower prices and buy then? You said it already, that it's better to buy low and sell high, but it seems that you are not following your own advice.

Enjoy your weekend!

[sunshine]

I think that a person shouldn't be allowed to buy house with 0% down. If you can't afford it don't buy it. It's the same with credit cards. People have heavy credit card debts because they take too much credit and live beyond their means.

[Steven]

It looks like there was a heated discussion here over the weekend :).

[bullish]

One thing I don't understand is why all this negativity?

-- MortgageOpolis, don't pay attention to all nay-sayers here, as nobody ever achieved anything with attitude like this!

[trent]

One thing I don't understand is why all this negativity?


Of course if you are in debt up to your eyeballs in debt you'll call a realist pessimist. What exactly is the positive you see in the Canadian economy and/or housing market?

[heyjude]

One thing I don't understand is why all this negativity?

-- MortgageOpolis, don't pay attention to all nay-sayers here, as nobody ever achieved anything with attitude like this!



You obviously don't read newspapers and have no idea what is happening right now in the world... You keep your head in the sand...
Can you please share what did you achieve? Share your thoughts and tell us what is the best thing to do?

[bullish]

Obviously you can still get a 100% financing, which simply means the real estate situation in Canada is under control and there is no crash here:

suncoast.ca/nodownpayment.htm

[Canadian]

Obviously you can still get a 100% financing, which simply means the real estate situation in Canada is under control and there is no crash here:

suncoast.ca/nodownpayment.htm

If you look at the bottom of the link you posted you'll see this:

"This product is currently unavailable."

I wonder why did they stop offering this wonderful 0% down financing? Is it possible that this has something to do with crashing housing prices?

[trent]

Yet another useless post by bullish :p

[bullish]

OK, I didn't see that they stopped offering 100% mortgage financing, however I'm sure there are still plenty of financial institutions that do.

[Canadian]

OK, I didn't see that they stopped offering 100% mortgage financing, however I'm sure there are still plenty of financial institutions that do.

I challenge you to show me even one Canadian financial institution that will be willing to give you 100% mortgage financing. I won't be holding my breath though...

[trent]

I challenge you to show me even one Canadian financial institution that will be willing to give you 100% mortgage financing. I won't be holding my breath though...

Well he isn't replying, is he? A big surprise this is :p

[Canadian]

Of course he isn't replying. It's easy to talk without checking your facts.

[bullish]

Of course he isn't replying. It's easy to talk without checking your facts.

I wasn't replying, because I simply forgot about this thread. However I'm sure there'll be plenty of 0% down mortgage offers once the real estate prices start to rise rapidly again.

[welshboy]

CMHC and Genworth have taken the 100% financing away which allowed borrowers to purchase a home with no down payment with FIs best available rates. Borrowers had to have a beacon score of at least 680 and if joint applicants then both had to have over 680. There was also another option for no down payment mortgages called the cash back which is a 5% cash rebate from the lender which can be used for the down payment. The FI will charge the borrower the posted rate for the mortgage and the borrowers have to have a beacon score of 650 and joint applicants can average scores to be over 1300.

if the borrower breaks the mortgage they have to pay a penalty and also the lender will claw back some of the cash back as well. So the cost of breaking the mortgage can be really expensive.

So really no down payment mortgages have not gone away they have just become more expensive.

[NoDebtGuy]

CMHC and Genworth have taken the 100% financing away which allowed borrowers to purchase a home with no down payment with FIs best available rates. Borrowers had to have a beacon score of at least 680 and if joint applicants then both had to have over 680. There was also another option for no down payment mortgages called the cash back which is a 5% cash rebate from the lender which can be used for the down payment. The FI will charge the borrower the posted rate for the mortgage and the borrowers have to have a beacon score of 650 and joint applicants can average scores to be over 1300.

if the borrower breaks the mortgage they have to pay a penalty and also the lender will claw back some of the cash back as well. So the cost of breaking the mortgage can be really expensive.

So really no down payment mortgages have not gone away they have just become more expensive.

In reality the only difference between the cash back programs and the zero down programs is the claw back if you have to break the mortgage. They may have become marginally more expensive depending on what you can negotiate for a rate.