Why would anyone want a no money down mortgage today? Actually a lot of buyers would love to have the opportunity to buy a home or an investment property with no money down, including myself. Bring back the old days someone shouts from the back of the boardroom earlier this week when talking about it during an office meeting.
Having said that; I must commend Finance Minister Jim Flaherty with restructuring the mortgage rules over the past few years. One of the biggest rule change was no money down, if you want to buy a mortgage from a bank today you will be required to have at least 5% of the purchase price down plus other monies for closing costs such as land transfer tax, legal fees, H.S.T of the CMHC insurance fees and other soft costs that come with buying a home or a Toronto condo.
The step taken by the federal government was the correct one in order to protect our economy and our housing market. I'm not one who likes financial regulations in our system but some are needed to protect us from I hate to say but ourselves. These are the type of regulations amongst others that would of saved the United States from crashing its real estate market.
A no money down mortgage is great of your the borrower as you are not taking on any risk, although the last thing you want to do is ruin your credit rating with the bureau if you want to have a successful business future. (If you’re a no money down borrower I suggest you continue to pay your mortgage payments) All the risk lies with the lender as its the lender is stuck with the property with the market tanks just like it did in the States a few years back. Having said that high risk does come with high reward as some private lenders have been cashing out nicely here over the last 3 years, lending to buyers who are buying Toronto real estate as the market as been on the incline since I can remember. Some of these no money down mortgages come with an interest rate as high as 15% if it's registered as a second mortgage and as high as 9% if it’s a first.
Take this next thing I will tell you about no money down mortgages as what I'm about to say will consider me a hypocrite. If I'm borrowing a no money down mortgage is one thing, but if I'm lending the money than I would never lend with at least 25% down. My philosophy when dealing with investment properties that I own is to never sell unless it's makes absolute business sense, one requirement I have if I were to sell any of my own personal properties is that I must give the mortgage to the buyer or I won't sell, I do not want to be paid out on closing. I will give the mortgage at a competitive rate as long as some requirements are met by the buyer; one for instance would be that a minimum of 25% be put down or no deal. I do this to protect my interests and minimizing my risk factor if the market begins to tank. The banks in essence have taken the same approach and if the buyer has less than 25% down than mortgage insurance is required.
I for one agree with the regulations that have been put in place, not all of them but most, that's another topic for a different day but having said that it's essential that our economy is protected at all costs and we as Canadians do our part. The last thing we want is to be labeled as a high risk country to invest in as our neighbors to the south have been.
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