Zero Down Mortgage Still Available and Don’t Be Shy About It Using It

You thought the zero down mortgage was gone. Eliminated. Didn’t the Department of Finance eliminate zero down mortgages in Canada along with forty year amortizations last October after observing how improper mortgage lending standards could lead to catastrophic consequences in the US?

They did. However many major financial institutions are still offering what are effectively zero down mortgages by offering a product called the cash back mortgage. Here’s how it works; the bank loans you up to 95% of the purchase price of the property (plus insurance premiums -- in Canada a mortgage must be insured when the down payment is less than 20% of the purchase price). In addition, they give the borrower 5% of the mortgage amount on closing to be applied towards the purchase of the property. To be exact, that amounts to 99.75% financing which is basically zero down. Assuming you’re buying a $300,000 property under this program, you’ll have to come up with a $750 down payment plus closing costs. Why does the lender give you 5% cash back? That seems rather generous. Simply, they plan to get the money back over the term of the mortgage by charging a higher than normal mortgage rate.

For example, in comparing the rates at one of Canada’s banks on April 29th 2009, the rate for a 5 –year fixed rate mortgage with a traditional 5% down payment was 3.95% vs 5.25% under the 5% cash-back program.

The cash back product isn’t given a lot of attention today and I think that’s because of the negative stigma attached to anything that seems like aggressive mortgage lending. The thing is, given the slowdown in our economy, we need to do what we can to get our economy moving. The Bank of Canada has put billions of dollars into our banking system to ensure that our lending markets remain fluid. The cash back mortgage is a great product for first time homebuyers who have stable income but who have not had a chance to save for a traditional down payment. It is nothing like a subprime mortgage because you must have a steady job with provable income and a good credit history.

Market at Bottom: Rates Still Falling

Last Friday one of our lenders announced they were raising rates. Given the more positive economic signals we have been hearing about in the media, I assumed we had turned the corner and expected to see other lenders follow with rate increases of their own.

Turns out the only reason this lender increased rates was that they were swamped and couldn't keep up with the volume of applications. The fact is, mortgage rates continue to fall.

This evening I received an email from one of our lenders; they are offering a 5 yr fixed rate of 3.69% on deals closing by May 29th.

Though rates are still dropping, my sense is that real estate has hit the bottom and there is no better time to get into the market. Anyone in this business knows that the market is heating up and despite wider economic issues, we have a very strong real estate market in the GTA.

If you want a great rate for your customer AND excellent mortgage service give me a call. I can be reached anytime at 416 876 2031, promise to return phone calls promptly and will be sure to keep you in the loop.

Is Now a Good Time To Refinance Your Mortgage?

With mortage rates down, a lot of people who have fixed rate mortgages at a higher rate are wondering if now is a good time to refinance their mortgage to get a lower rate. Generally I believe it is NOT, but the first thing you need to do is find out what your penalty will be to get out of your current mortgage. To get out of your mortgage, most institutions charge three months interest or the interest rate differential, whichever is greater. The interest rate differential (IRD) takes into account the difference between your contract rate, the number of months remaining in the contract and current rates. Note that the lower rates get the bigger the penalty (IRD) gets. Don't make the mistake of comparing your fixed rate mortgage with variable rates. No-one can tell for sure where rates will be in one or two years. If you choose to go with a variable rate, know that there are risks and be sure you are prepared to live with potential fluctuations in rates.

Once you know what your penalty will be, it's worth asking your lender what alternatives, if any, they are willing to offer you. You might be able to get a lower rate by negotiating an early renewal. By blending and extending your contract with today's lower rates you might be able to avoid the penalty altogether.

It might be worth refinancing if you have other debt outside the mortgage at higher rates that you would like to consolidate into your mortgage. Find out what your bank is willing to do for you, then seek the advice of an independent mortgage specialist to make sure you're getting your best deal.

Bank vs. Mortgage Broker

I recently spoke with some new clients who didn't understand why they would want to use a mortgage broker to arrange their mortgage when they could qualify for a mortgage at a bank. More and more people are turning to mortgages brokers for choice, service and competitive pricing.

I put together the following matrix to summarize the differences and advantages of using a mortgage broker.

Click here to view the matrix in PDF.

Rate Advisor

Want to have my weekly rate updates delivered to you inbox? Click here to view rates on my Mortgage Alliance Rate Advisor page and sign up for weekly rate updates.
Do you need help with a mortgage? Call me at 416 876 2031.

The Self Employed Mortgage

You’ve worked hard to get your business off the ground. It’s taken months or years but you’re finally enjoying a steady return. One of the many benefits of being self employed is that you have an opportunity to reduce the tax you pay because you can write off business expenses. Any accountant worth his (or her) weight will help you develop strategies to reduce the amount of income your report, to minimize the tax you pay.

Now you want to apply for a mortgage. The only problem is, the first thing the bank asks you for is your tax returns. “Show me the money” they say. And so it goes.

Self employed people are advised to seek out the services of a mortgage broker who will match your mortgage application with the right lending program. There are lenders out there that will either gross up the income you report by some margin if you are self employed, or waive the requirement to prove income altogether.

At Mortgage Alliance we have fifty six different lenders to choose from when matching your application to a lender. There are many lenders that you can only access through a mortgage broker, and since they don’t have a massive network of branches to support as the banks do, their rates are lower than the banks.

With as little as 10% down, a self employed applicant can obtain a mortgage without any proof of income. The application must be reasonable however. For example, if you are a self employed mechanic it is reasonable that you could afford to carry a $300,000 mortgage, but not an $800,000 mortgage. Your credit should also be excellent and the lender will also want to see that the down payment is coming from your own resources.

Service vs. Price: Service is the only sustainable way to differeniate yourself

As a mortgage specialist, one of most common questions I get when a prospect calls me is what are your rates? Through Mortgage Alliance we have access to very competitive rates, but I think that is one of the least important questions. First of all, most mortgage agents have access to the same lenders, rates and programs. In addition, rates change daily and sometimes by the hour. Fortunately we have access to Mortgage Alliance's Rate Advisor (click here to visit Rate Advisor now), which gives you current rates and automatically sends you weekly e-mail updates if you sign up; however, even Rate Advisor is not 100% accurate. It doesn't change everytime a lender announces a new promotion. The number of variables that will affect your rate are too numerous to capture in a chart. While I will always do my best to give people my best estimate as to what their rate will be, I usually have to get back to them after checking for the latest updates.

How do I differentiate myself?
In a word, SERVICE. Anyone in business for themselves knows that your business will not be sustainable if you try and compete on price alone (unless you are Walmart or somebody like that). There will always be someone willing to give their service away at a lower price. That's is why I put most of my energy into figuring out how I can offer better service than my competitiors. I want to be they guy you know you can count on to get things done, the guy who answers all your questions and explains everything to you until you have no more questions, they guy who ALWAYS gets back to you and your clients and who keeps you and your clients in the loop in terms of what is going on with the mortgage. That is how I compete. Knowing how to do, what you do, better than anyone else, being more helpful and more diligent than anyone else is in our industry is, in my opinion, the only way to complete. Oh yeah, and having a good marketing idea once in a while won't hurt either.