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MORTGAGE ARTICLES
Clearing the downpayment hurdle is easier than ever
“Buy a house with no money down!” We feel intuitively
that it can’t possibly be true. But this year, watch for a fresh crop
of promotions for mortgages available with little or no downpayment. Thanks
to a recent policy change from Canada Mortgage and Housing (CMHC) –
as well as some flexible new mortgages on the market – prospective homeowners
have some innovative strategies at their disposal, all designed to help clear
the path to home ownership.
First, let’s look at the new policy from CMHC. Introduced
in late February this year, the policy eases the downpayment requirements
for mortgages – allowing for several flexible alternatives. Traditionally,
homebuyers needed to provide a minimum 5% downpayment from their own financial
resources in order to purchase a home. The policy was an informal test of
the savings discipline of the prospective homeowner and his or her ability
to manage the financial responsibility of a mortgage. In the past few years,
it has also been a test of nerves – as would-be homeowners watched mortgage
rates fall and house prices climb while they scrambled to meet the CMHC downpayment
requirement.
But effective March 1 of this year, the rules have changed.
That 5% minimum downpayment can now come from any source: credit cards, personal
loans, lines of credit, or even cash-back incentives offered by mortgage lenders.
The new policy is good news for would-be homebuyers with
the cashflow to take on a mortgage – but who are still struggling to
come up with a downpayment. Many young people, for example, have begun to
enjoy good income – but their student loans have left them with non-existent
savings.
If the new, flexible downpayment policy seems surprising,
it’s because our ideas about mortgages have been ingrained by many years
of experience with traditional mortgage products in traditional institutions.
But while banks still offer a wide-range of mortgage options to Canadians,
they have been joined by other types of lending institutions, who have been
developing innovative new mortgage choices for Canadian homebuyers –
and responding to changing customer preferences and a shifting rate environment.
At Mortgage Intelligence – a leading mortgage firm –
clients were enjoying a “no downpayment” mortgage option well
before the new CMHC policy change this February. In fact, eligible Canadians
homebuyers have been taking advantage of a mortgage that allows them to borrow
up to 7% more than the value of the home. The additional funds cover the higher
fee for the mortgage, and even offer a 3% cash back that homeowners can use
to purchase appliances, pay off other higher-interest debt or pay for closing
costs.
The objective of both the new CMHC policy and the innovative
new mortgages is the same: to help qualified Canadians step quickly
into home ownership.
Every prospective homebuyer, of course, should discuss their situation
with a mortgage professional – and make a realistic assessment
of the risks and financial responsibilities of a mortgage. But
we’re experiencing strong housing prices and mortgage rates
the lowest they’ve been in memory. And for Canadians with
financial discipline and good income prospects, these new “no
money down” options mean they won’t have to stand
on the sidelines of this historic opportunity!
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