No Money Down Mortgage Please!

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With all the talk of tighter mortgage rules and the need to bring down debt levels in Canada, you might be surprised to hear that it’s still possible to buy a house with ZERO downpayment!  The mortgage rules have tightened 3 times over the past few years from when 100% financing was readily available to now, when amortization have been shortened by 10 years and there are calls to increase the minimum downpayment to beyond 5%.  The recent budget announcement did not recommend further tightening, but the assumption was that borrowers still required a minimum 5% downpayment.

Only a select group of banks and credit unions offer the no money down option so you have to know where to shop (Scotiabank, National Bank, Meridian Credit Union….shhhh).  But have no fear!  It won’t be raining fire, and cats and dogs won’t be living together – this is a good thing.  The additional risk inherent in these programs is being absorbed by the lenders and not the public insurer.  Essentially what is happening is the lenders are giving the borrower the minimum 5% down in exchange for a higher interest rate.  The lender takes on the risk, but they earn more interest revenue and help some first time buyers get in the door sooner!

This is the way a capital market is supposed to work.  Let the lenders run their own businesses and make their own rules.  If TD wants a minimum 7% cash downpayment then they should run their business accordingly.  If Scotia is happy with borrowers making no downpayment then good for them.  The mortgage insurance backed by public money will set its own rules, but it also provides enough room for lenders to make their own business decisions.  And don’t worry about keeping it a secret.  I’m sure Jim Flaherty would approve.

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