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Buy Home with NO Money Down - NO More! What's changed in the Mortgage-Loans Market?

Submitted by Jasmina on Sun, 2008-09-14 05:40.

Zero Down-Payment No More! Recent changes to Canadian government guaranteed mortgages will soon make buying a home with zero-down payment thing of the past. News announced by the Minister of Finance has left the majority of Canadians mystified as to what removing the “government guarantee” from some of lending programs means.

My in-house Mortgage Professional Justin Risi explains...

Most understand how mortgage insurance works (not mortgage life and critical illness insurance, but mortgage default insurance). It’s a premium applied to your mortgage, paid to a mortgage insurer, who in turn agrees to insure your mortgage with your lender in the event you default. In other words, it is protection for the lender should their customer not make payments. This is a mandatory insurance for mortgages higher than 80% of the home value.

But what if a lot of people all suddenly can’t make their payments and the insurer responsible for protecting the lender is unable to cover their insurance obligations? The lender then faces a borrower not being able to make payments and an insurer possibly not being able to pay out insurance coverage!

Enter the government guarantee...

The Canadian government will guarantee up to 90% of the mortgage amount against insurer default, which is security for the lender in the event the insurer defaults. This is additional protection against a double-default scenario (where neither borrower nor lender comes through for the lender). This Government Guarantee is in place for CMHC (Crown Corporation) as well as the private insurers, such as Genworth Financial Canada.

The government guarantee is also a criterion for high ratio loans to be sold into the Canada Mortgage Bond program, a relatively new cost-effective funding source for banks and mortgage lending companies. Investors worldwide purchase these due to a higher yield (than Government of Canada Bonds) combined with their “government guarantee”.

So what has changed?

Well, the Finance Minister looked to our southerly neighbours as well as across the pond and noticed some pretty dire scenarios which begged the question: Are we guaranteeing mortgages that are a little too risky? After an analysis of the mortgages that fall within their guarantee, recent trends, and industry consultations, the Minister of Finance decided to cease guaranteeing high ratio mortgages with the following characteristics:

  • LTV ratios in excess of 95%
  • Amortizations in excess of 35 years
  • Non-amortizing mortgages (Interest-Only Mortgages)
  • Applications where the beacon score of both borrowers is less than 620.

How does this affect the You?

If you are a current homeowner, who is happy in your home and have no intentions of moving in the near future than this probably doesn’t affect you. However if you are a prospective home buyer, looking for 100% financing or a 40 year amortization then your financing options are becoming a limited. Most of the big chartered Banks and many lenders have already pulled the above products.

My in-house Mortgage Alliance Mortgage Loans Canada Agents still work with a couple lenders that will continue to offer these products right up until midnight of October 13th. If you have been considering purchasing your home with a zero-down payment, don't miss out on your opportunity. Act now! Click here to request your free, quick & confidential Mortgage Application Form.