CMHC has changed the requirement and have removed 100% financing from the products they offer. Now every Canadian that receives CMHC insurance has to have at least 5% down.
You may still be seeing advertisements or have spoken to friends or family that have received 0 down mortgages and you wonder how that is possible?
A “Free Down Payment” mortgage or a “Cash Back Mortgage” is how.
How does this work?
The bank will offer qualified buyers the 5% they need for down payment in the form of cash back when the mortgage is closing. This satisfies CMHC’s need for the 5% requirement when they issue their approval.
What is the catch?
None really, it is very simple. In lieu of the best discounted rate for a 5 year term they give you the cash discount up front to use for your down payment. You are in a closed 5 year term for the posted rate as you have taken the discount in rate up front. As they have given you the cash and you are responsible for that discount if you sold or refinanced to pay them out prior to the 5 year term ending you would be responsible for the money you were given up front on a pro rated basis.
The benefit is that you take advantage of today’s home prices and are gaining equity and paying your mortgage down while if you waited you may be still waiting to save up your 5% down requirement.
Today these “Free Down Payment” mortgages are often offered at a better rate then we saw a 5 year fixed rate at a year and a half ago. When your 5 year term is up you are able to negotiate the best discounted rate.
A great way to get into the real estate market or use more of your homes equity to pay down your debt load.
Kevin
