Tag Archives: zero down

Saving is hard.

One of the great things about the Vancouver housing market is that we don’t have subprime lending.  All of our loans are rock solid and even if they weren’t guaranteed by the government banks would still be eager to hand out the same mortgages.

And yet..

If there’s one thing Vancouverites know, it’s that saving money is difficult.

So what are you to do as a responsible first time home buyer who is unable to save up the hefty 5% required to get a CMHC insured mortgage?

Don’t worry, at least one bank has your back: Vancity will match half your downpayment savings on a home priced under $500k.

Still that’s not exactly zero down, since the CMHC scrapped that in 2008, but if saving up 2.5% is still too difficult you may have other options.

But remember, unless you have a poor credit rating this still isn’t subprime.

Apparently it’s gotten harder to get the long term zero down mortgage the CMHC made available in the past, but not impossible.

So who’s buying condos?

By now even the reader of the province know it’s a slow real estate market out there.  Not much is selling, sales to list ratio is low and prices are dropping.

..and yet, we still hear of new developments that have big opening day sales (where ‘opening day’ conveniently ignores months of marketing).

So who’s buying these new condos?

According to Bob Rennie it’s young people without any money:

Rennie Marketing registered 7,500 potential buyers before the sales launch, and he says the majority were under 28 years old. He believes it is the young demographic that is fuelling the sales of projects like the two he’s selling at Marine and Cambie. Part of MC2’s appeal is that because it’s not downtown (a 20-minute SkyTrain ride), the prices are lower. And pricing on more than half the homes was kept under $350,000, to appeal to the young demographic.

“So, we made the right decision bringing on both towers at MC2,” he reflects, sitting in a trendy coffee shop on Main Street. “We’ve released all the affordable product. There are 130 homes without parking so that we could get inventory under $300,000. We really did the research on the first-time buyer when we did Marine Gateway across the street, and 28 per cent of our buyers answered in an exit survey that they were receiving down payments from mom and dad, and grandparents.”

Full article in the Globe and Mail.

No more 30 year mortgages.

..well that headline is a little misleading, you’ll still be able to get a 30 year mortgage but you better have a big down payment. No more 30 year mortgages for CMHC insured mortgages.

The country’s biggest banks were caught off guard on Wednesday night as the Department of Finance prepared to clamp down on mortgages by reducing the maximum amortization for a government-insured mortgage to 25 years from 30.

Ottawa will also limit the amount of equity that can be borrowed against a home to 80 per cent of the property’s value, down from 85 per cent.

The moves are designed to cool the housing market and limit the record levels of personal debt Canadians have amassed in recent years. Figures from Statistics Canada show the average ratio of debt-to-disposable income climbed to 152 per cent, up from 150.6 per cent at the end of 2011. A rise in interest rates or further job losses could put some households at financial risk, endangering any economic recovery.

So we’ve come circle with mortgages going from 25 year, cranked all the way up to US bubble style zero-down 40 year mortgages and then ramped back down over the last few years to a maximum 25 year amort. It will be very interesting to see what this does to some of Canadas overpriced markets.

The new lending guidelines

Those new OSFI guidelines for CMHC mortgages are still ‘coming soon’, but the Vancouver Sun has an article up outlining the current state of the guidelines and predicting they will be announced in the next few weeks.

They’ve softened some since the first concepts floated out there by OSFI, but as a batch of changes that occur all at once they still stand to have a marked impact on the market.

Here’s the list of predicted new guidelines:

. Home Equity Line of Credit mortgages reduced from 80-per-cent financing to 65-per-cent financing.

. Lines of credit to be either amortized, or amortized after a specified period of time (no more never-never plans).

. More stringent income requirements for self-employed borrowers.

. All mortgages to be reviewed upon renewal (currently as long as payments are made, it is unlikely for a bank not to offer a renewal to a client).

. Funds from cashback mort-gages are not allowed as a source of down payment (currently only a handful of lenders allow this, but it does mean that “zero down” mortgages are technically avail-able, but with some restrictions.)

. Use of the five-year posted “benchmark” to qualify uninsured terms of one to four years and all variable terms (currently most lenders use a three-year posted or a lower rate to qualify uninsured mortgage.)

. More limits on underwriting exceptions (many recent applications don’t fit the ever shrinking “boxes” with the banks, which means fewer common-sense deals will get approved.)

. Home insurance to be included in debt-servicing ratios (it is currently not included.)

. More public disclosure of statistics pertaining to institutions’ mortgage practices.

. More accountability from management to ensure lenders are adhering to their underwriting guidelines.

If these changes are implemented I guess we’re going to find out how much of our real estate market is supported by those who are stretching beyond their means.

Bank offers you should not accept

Many Franks pointed out this article in the Financial Post, which offers a flipside view to yesterdays “do whatever it takes to scrape up 5%” article.

It has a real simple message: Banks exist to make money.  That includes making offers that sound good but may not be in your best interest.

While many people want to blame the banks or the government for Canadas alarming consumer debt problem, theres only one person who is truly to blame: the consumer.  Sign yourself up for a suckers deal and you have only yourself to blame.

While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.

In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble.

One of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution.

Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told.

Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term.

Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage?

“Somebody is going to pay for it,” says Kelvin Mangaroo, president of RateSupermarket.ca, about the cost of the promises. “Sometimes there is more fine print than the actual offer.”

Check out full article here.

What do you think, do we need more consumer protection to protect consumers from themselves?