40-year Ams and $0 Down

Mortgage-Amortization Here’s the latest on the "end" of government-backed 40-year amortizations and 100% financing:

  • Borrowers with only 5% down will reportedly still be able to add insurance premiums to their mortgages.  (Effectively increasing the total LTV above 95%)
  • Cash back mortgages are still expected to be available from certain lenders.  This may allow for the possibility of 100% financing, albeit in a far more expensive manner.
  • High-ratio interest-only mortgages and lines of credit will no longer be insurable and will likely dwindle from their current small numbers.
  • Canada’s 2nd biggest mortgage insurer, Genworth, has announced it will follow with the federal governments new amortization and financing limits.  President, Peter Vukanovich, said today, "Our products will comply with these rules beginning October 15, 2008, when the new limits take effect."
  • Insurers AIG and PMI might not bow to the pressure.  There are reports they may be hatching a plan to keep 40-year amortizations and 100% financing alive.  The National Post reports it may involve a 95% insured 1st mortgage and an additional 5% non-insured securitized portion.
  • AIG says 40% of it’s insured mortgages have 40-year amortizations.  It’s a market they don’t want to lose.
  • PMI Canada, is meeting with the Department of Finance at the end of this month to discuss some possibilities.
  • TD is the latest lender to axe 40-year ams and 100% financing.
  1. No Chance AIG gets 100% an LTV product to the market that has a 95% insured portion. Most dislosure documents ask the borrower to sign an acknowledgement that secondary financing will not in place at the time of signing. Also, if you were CMHC, would you want to secure a 95% mortgage with a weakened covenant through secondary financing?

  2. Whistler
    I think you make a good point but then again, insurers do insure cash back mortgages and those weaken the covenant don’t they?
    Maybe PMI will find a way to keep 100% financing alive. If they don’t then homeowners will resort to whatever means are available to achieve the same end. The difference is that they’ll pay more to do it, which is a shame.
    In the end the federal government’s new rules will not defeat 100% financing. One could even argue the rules might add MORE risk to the housing market if borrowers have to pay more to get around them.
    Just one perspective on the matter,
    Jennifer

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