0% down mortgages over?

[trent]

Originally Posted by 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!

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]

Originally Posted by bullish

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]

Originally Posted by 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!

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?