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Alternative Down Payment Sources

Updated Tuesday, January 15, 2013  ::  Views (2913)

NOW is the time to invest in RRSP’s to get a tax refund for 2012, which in turn can be used towards a down payment on a house or to pay down on your existing mortgage. THERE IS STILL TIME ! 1st time homebuyers looking to purchase, should consider investing in their RRSP now for the 2012 tax refund, and then they can draw it back out after 90 days, to use for their down payment on their first home, tax free!! Win win! Call or email me Today if you have any questions and I would be happy to guide you or refer you to a mortgage specialist here in Sarnia.

It’s still perplexing that regulators let homebuyers borrow their 5% down payment from high interest sources, yet the government bans lower-interest cash-back down payment mortgages and 100% financing.Globe column looks at ways people scrape together down payments when they don’t have enough non-registered savings of their own.

That’s not to say that borrowing a down payment is advisable (it isn’t in most cases). It’s more a statement that there is regulatory inconsistency here, which is peculiar in a hyper risk-sensitive lending environment

Banks to End Cashback Down Payments

Cashback down payment mortgages are on the endangered list.

One of the biggest remaining lenders with a cashback down payment mortgage is Scotiabank, which announced today that it is terminating its “Free Down Payment” program, effective September 15. OSFI has decreed that “Cashback should not be considered part of the down payment.” Most Federally regulated lenders must therefore eliminate these offerings no later than October 31, 2012.

Cashback mortgages - essentially 100% financing - are a niche product that are seldom appropriate for owner-occupied purchases (sometimes they make sense for rentals). There are exceptions, but most of the folks who want them are simply a bit too eager to buy.

The Canadian Association of Accredited Mortgage Professionals (CAAMP) supports OSFI’s call to end cash back products in lieu of 5% down payments. “Borrowers should have ‘skin in the game’,” it says.

There aren’t many federally-regulated lenders with 5% cashback down payment mortgages left. Last time we checked, National Bank and B2B Bank were two of the banks still doing them. Those options likely won’t be around for long.

Despite the above, banks (including Scotiabank) will continue selling cashback mortgages so long as the funds aren’t being used as equity. Buyers sometimes use cash back for things like land transfer tax, lawyer's fees, moving costs, closing costs, furnishings, landscaping, renovations, and so on.

Cashbacks are also used for refinances to 85% loan-to-value (the official refinance limit without cash back is 80% LTV on insured mortgages).

I would like to thank you for reading this article.  If you have any questions,  please do not hesitate to contact me.

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