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Hello, I am wondering if anyone has any insight they would be willing to share with me. We are first time home buyers who were just pre-approved by our bank for a "No Money Down" mortgage. My question is, can we negotiate a better rate with this mortgage type (if we were to see a broker), or is it fixed at the bank rate and can't be negotiated? Basically, are we getting the best rate available to us for no money down? (FYI, 5 year closed at 3.44%). TIA for any responses!
Is there a reason why you want to go the "no money down" route? It seems to me that if money is so tight that you can't come up with a down payment, perhaps you should wait to buy a house. Please don't take this comment the wrong way. I just think you have a better chance of success if you have good cash flow when starting out as a new homeowner. With a down payment (20%?), you can also avoid having to take out mortgage insurance, which is an added cost. By having a decent down payment, you also demonstrate to the financial institutions that you are a good risk, which may lead to a better rate.
IMO, the reason why so many people defaulted on their mortgages (which contributed to the house collapse in some areas), is that people didn't recognize that they could not handle the responsibility of so much debt.
When we had a mortgage, we went through the bank. I'm not sure whether a broker could give you a better rate, especially if you don't have a down payment.
There is nothing wrong with a no money down mortgage, we had a cash back mortgage and used that for our down payment. We didn't have enough money saved lived in a small 2 bedroom apartment with baby #2 on the way. We could easily afford the payments and put more on the bi-weekly payment.
IMO 3.44% for a no money down mortgage is a really good rate. When we got ours over 5 years ago it was 6.3%.
The only thing is read the fine print there are usually stipulations on these types of mortgages. For us if we wanted to move our mortgage elsewhere we had to pay back the cash back.
The way house prices have been going, you may end up paying thousands upon thousands of dollars more for a house by waiting a year. If you have the income to make the payments and make a dent in your mortgage then I think you're in a position to go for a no-money mortgage. Just my 2 cents.
Like marstec, I would RUN from a no money down mortgage. There may be job loss or major illness, and then the mortgage may not be easily paid. I would have the appropriate down payment saved so there is no mortgage insurance + an emergency fund of 3-6 months living expensive. This is before signing on the dotted line.
House prices fluctuate. They will not always go up. Some may have a distressed sale, fixer upper, estate sale etc. A good realtor can find gems where others have not been able to.
Just my experience.
Just my 2 cents worth.
Anita,Quote:
Originally Posted by AnitaHouse2
The rate is excellent for a "no money down" mortgage. I'm assuming you have very good credit.
Every individual is unique so I can't say whether this is a good idea or not. I do agree with the others that you should have a savings for a minimum of 3 months living expenses. With zero equity in your house, you're living on the edge. . as it were.
I also agree that you should take a very close look at the small print. I'm guessing there is NO option to get out of that term except selling the house for any reason. Check for "administration" and "lender" fees. Also, what are your payment options?
I thought the government put a stop to no money down morgages awhile ago?
I thought it was the forty year term mortgages that were stopped.Quote:
Originally Posted by Insane
of course its always best to save what you can for downpayment but my dh and I found a perfect house a great price before we got married (came by it accidentaly) and because we were paying for the entire wedding we had little extra to part with (i had only started working full time 1 year since was a student before hand) i must say if you can afford the payments with some flex room go for it bc we have never had an issue and even increased payments. The insurance sucked but was a one time cost.
Before we even had the downpayment and emergency fund, we did not even look at homes - so as not to be tempted, become emotionally attached, not to be disappointed.
When we found a home, it was the first of 26 we visited. We looked at 56 homes in total. We had a checklist going in. We tried to take the emotion away -- not easy to do. We paid $350 for a home inspection -- best money spent, ever
After our conditional offer, we checked out the neighbourhood with available police information, we visited during rush hour, morning and evening and on weekends. We did this for a month.
We had friends living in the area for about 5 years. They told us the ins and outs of the area, the neighbourhood, the history, the good and the bad.
During bad recession times, we didn't cringe. If we had a job loss we could manage for at least 6 months. (BTW, we would take a part time job while looking for full time, to keep the mortgage paid on time and on our accelerated schedule.)
Neighbours have come and gone over the past few years. Both good and bad neighbours.
We are happy we did our homework.
We are happy we waited and saved.
Hello again, and thanks for all the replies! :flowers:
We are in Saskatchewan, just last year the house prices in our city went up 10%, and they are predicted to go even higher in 2012 so we'd like to get into the housing market as soon as possible, but at the best rate available to us. I should also mention our housing shortages along with sky rocketing prices in our city have further propelled us into action. The "good" houses in our city do not last long on the market (typically sold within days), so waiting until we have 20% or more saved is not a very viable option and could in fact hurt us financially.
My question was not about the mortgage type itself, it was about the rate, specifically if it can be negotiated. But since it has become a topic I will explain a bit more here. Affordability isn't the case, we do indeed have a nice down payment saved, however unless we dip into our RRSP's and other investments it won't be the 20% recommended (it would be heavenly to have $80,000 in our savings account just for our down payment though lol). We have never applied for a mortgage before, this was the first crack at it. Our mortgage specialist mentioned that this option was becoming more popular for people in our situation who have less than the 20% cash in hand for a down payment but who do have very good, stable income, very little debt and great credit. So we were pre-approved, at a great rate it seems, for this mortgage type. Of course this type isn't for everyone, and of course it's not our only mortgage option, but its nice to know it is available to us if ever we choose to go ahead with it. :)
If your above explanation is true, than My Dear... Go for as less Down Payment as possible & take as much cash back as possible. Why block your money in a dead, long-term, boring investments (like a house). Take it, while its available, because its unheard of, to get 5% cash-back on zero down-payment. Its exactly the same thing what was rampant in US in 2003-2007, which caused the US housing explosion Than Housing implosion. If they have started in Canada than the housing price here will see the same fate.Quote:
Originally Posted by AnitaHouse2
But (in reality) do we care. Make the best use of the benefits while is still available.
Good Luck. My suggestion: Whatever saving/ RRSP/ investments you have, be very conservative in their allocation, maybe GIC/savings/etc. You are already going very aggressive on the housing. Its just to protect the savings from having any loss...
More than the interest rate: you should focus on the actual Dollar amount of monthly payment. Since you are taking fixed interest rate, that Dollar amount will stay the same for the 5yr time frame....
You are paying a bit higher rate, but you are buying peace of mind (that your bill wouldn't increase for atleast 60months)
I wanted to mention as well if you are in a position to make prepayments or anticipate being able to make prepayments during your mortgage term, you may want to consider prepayment options when getting your mortgage as well. It shaves off how much you pay in interest. Good luck :)
Mostly people buy stuff when its on sale (that's when you get fair value)Quote:
Originally Posted by AnitaHouse2
When its already up 10% & more over the last year & couple years, how much more up you expect it to go?
Saskatchewan is a special case now, with oil and such.Quote:
Originally Posted by jalalpur
I think there are still bargains to be had, maybe just outside of the boom area of Saskatchewan :shrug:
It you're thinking about going with a "cash back" mortgage, I would highly recommend not too. While the 3.44% rate is not too bad, a 3.29% rate for a regular no cash back mortgage is even better. You're technically not getting any "free" money since you'll end up paying the higher interest rate. Also, with a cash back mortgage, if you need to break your mortgage for whatever reason (divorce, move, etc) your penalty will be MUCH, MUCH higher!
Asking about "no money down" mortgages is like asking about butcher's knives. They are a tool, and in the right hands, it is a fine tool for the job. In the wrong hands, it can be a massacre.Quote:
Originally Posted by AnitaHouse2
In general, my advice would be that if you cannot afford the down payment, you cannot afford the house. I would not personally recommend making less than a 10% down payment.
A bit of information that the nice folks at the bank won't tell you here. The bank actually has an interest in getting you to make only a small down payment on your house. Here's how this works...
CMHC insures mortgages for banks. If a homeowner defaults on a CMHC-insured mortgage, the bank receives money from CMHC - not the homeowner.
But CMHC will only insure those mortgages with down payments less than 20% (link).
Now, this is where we get into bizzaro-world. If a affluent person buys a house with a 50% down payment, the bank takes the risk of default. If a poorer person buys with a 5% down payment, CMHC takes the risk. Oddly enough, the person with the lower down payment is less risky for the bank, even though they are more likely to default.
So this is ultimately why banks will push for low down payments. The taxpayer takes all the risk, while the bank makes all of the profits.
So bottom line is that the bank has an preference to get you to make as small a down payment as possible. But don't do it just because it is offered.
That is quite true . . . but CHMC is quickly arriving at it's cap on funds. . so it will be interesting to see if their rules start to tighten to slow the mortgage growth process.Quote:
Originally Posted by brunt
Mr. Carney is quite concerned about household debt levels and many analysts say he is flirting with an interest hike this year. But it's a coin toss really until we see more world economic stability.
Here is something to go through.. Canada following US footsteps, & is in the same situation where US was before 2007.. My question is "Why should Canada be different, when its exactly the same policies being followed: CHMC is doing exactly what Fannie Mae did in US"
"Ghost of Fannie Mae Haunts Canadian Housing as Exposure Worsens: Mortgages"
http://www.bloomberg.com/news/2012-0...mortgages.html
So long as buyers understand the consequences........ mostly buyers are getting fooled by the recent appreciation in the housing.
I cannot for the life of me understand the rationale behind CMHC...Quote:
Originally Posted by MortgageQueen
If somebody buys a $1.5 million house with a low down payment, the taxpayers really shouldn't have to foot the bill to bail out the bank if he should default.
My plan would be to insure 75% of the first $250,000 of the mortgages, and 0% above that. The bank should not be in a position to take no risk in giving a mortgage. And the taxpayers don't have to be on the hook for expensive houses.
I understand your feelings. There are neighbourhoods where 250k is a joke tho. Also, I believe CHMC main motivation is to push economy and consumer spending.Quote:
Originally Posted by brunt
It certainly did that!!
I agree that $250K is a low threshold, but I feel very strongly that taxpayers as a whole should not be subsidizing some homeowners who make a decision to live in an expensive area.Quote:
Originally Posted by MortgageQueen
The whole idea of CMHC (and it is an idea with which I have a number of serious objections) is to ensure that marginally qualified applicants can have access to mortgage loans, not that they buy a more expensive house than they can really afford. Historically speaking, banks would not lend out more than 80% of the value of a house, because if you could not afford a 20% down payment, you could not afford the house.
I also believe that pushing consumer spending is a role that neither government nor government-sponsored enterprises should be pursuing. With our dangerously high debt levels, we hardly have an issue of consumer spending being too low. Rather, it is far higher than it should be.
I firmly believe that government should not even be involved in the mortgage insurance business. Most certainly not with taxpayer money.
I know that this idea would never fly. That is why I believe that the amount of mortgage subject to insurance should be capped.
Its too late to reverse gear.. now......... since the housing expansion is epic in nature: the contraction will also be epic in nature. (remember the tulip mania & all other mania's in history, they all end in the same way "bust")
CMHC is too far down the hole; that there's absolutely no hope of any escape without a massive tax-payer bailout..
But don't worry- US has just shown the way, as to what to do, in a housing collapse situation. The only difference is "In Canada we do have a full recourse as compared to non-recourse in US". So a lot of people are going to be hurt very badly, when the housing markets starts getting in line with fundamentals.
And, why should banks care: they are in the business of making money "Profits are their's & all losses are transferred to tax-payers". Its a win win situation for them.
But the consequences of such tax-payer bailout will be a -
high unemployment,
devalued pension with less affordability,
third world kind of health system where the patient will/may die waiting for his diagnosis (forget about treatment, which will be unavailable due to lack of staff),
students loaded with huge debt,
schools becoming centre for drug use, & increased crime.. etc.etc...
.................
I also have some Good News for Canadians (or people living in Canada)..
Canada is expected to maintain its AAA rating throughout till 2040 (28years from now: by that time most of us might be retired or dead & gone).
This is happening specially at a time when everyone else is loosing it "AAA" &/or becoming Non-IG (Non Investment Grade).
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