For those who are finding it difficult saving up the minimum 5% required down payment to buy a home, you will be happy to learn that no money down mortgages are still available. While it has been in the Ontario mortgage news that CMHC is tightening its lending guidelines and TD Bank economists have suggested that CMHC should increase the minimum required down payment, CMHC is still high ratio insuring no money down mortgages and banks are still financing them.
No money down mortgages cannot be obtained unless an applicant has excellent credit. The minimum required beacon score for an applicant to qualify for a no money down mortgage is 680. The applicant must also have good income and stability.
When consumers obtain no money down mortgages the bank essentially finances the 5% down payment. This is not financed through a conventional loan or line of credit but rather it is financed through the mortgage interest rate. This means that if you want a no money down mortgage you can expect to pay 1%-2% higher interest than whatever the current prime lending rate is. The increased interest results in the bank receiving back the equivalent of a 5% down payment over the mortgage term.
There is less flexibility with no money down mortgages. You cannot obtain a variable rate no money down mortgage. You also cannot have any less than a 5 year mortgage term on no money down mortgages because the 5% down payment is repaid through interest over the 5 year mortgage terms. No money down mortgages almost always bears a 5 year fixed rate mortgage term.
At the end of the day if you can come up with a 5% down payment to buy a home, try to do it. There are just too many benefits to ignore. Not only will you have more flexibility when it comes to arranging your mortgage terms but you will also benefit from significantly lower interest rates on your mortgage. A mortgage that is 1%-2% less interest will result on a mortgage payment that is much lower (more than one hundred dollars per/month) and when you look at the interest savings over a 5 year time period it amounts to thousands of dollars.
If coming up with a 5% down payment is too difficult then a no money down mortgage may be your only option to realize your dream of owning a home. With interest rates at historic lows, a no money down mortgage even at the higher rate is still a very affordable option, considering that the higher rate no money down mortgage is still less interest than what your interest rate would have been had you purchased a home with a 5% down payment 5 years ago. With that in mind, if you need a no money down mortgage now is the time to do it. Not only are interest rates low enough but the Canadian Government has been consistently tightening Canadian Mortgage and Housing Corporation guidelines, so if you wait too long, no money down mortgages may not even be available in the future. It will be important to pay attention to Ontario mortgage news.