Goodbye to 100%/40-year Mortgages

100-percent-mortgage So long to 100% financing and 40-year amortizations on insured mortgages.  The October 15 deadline is here and both are now officially gone.

If you want to buy a house with a good interest rate, you’ll now need at least 5% down and a credit score of 600+.

Gone as well are most readvanceable mortgages and HELOCs with loan-to-values over 80%.  These products had become quite popular because they allow borrowers the flexibility of redrawing paid-down principal–which can be used for renovations, investing, emergency funds, etc.

Canadian Economic Press writes more on the impact to borrowers (kindly including a few quotes from us)…

  1. Cashback Downpayment products are still available from some lenders although it appears TD has pulled theirs as of today.
    Most have brutal interest rates but at least one I have seen offers a fixed 5-year @ 5.25%
    Interestingly, RBC now allows variable rate Cashback Downpayment mortgages – the first I have seen.

  2. I have been watching this website for a while for great tips and knowledge. In this article, it says “Gone as well are most readvanceable mortgages and HELOCs with loan-to-values over 80%.” I see the chart has yet to be updated – which might be gone now? My Husband and I were thinking of switching to one of these.
    Lisa

  3. In the article it states “The finance department also said it would require a minimum credit score and a maximum debt-to-service ratio for borrowers who want government-backed mortgages”. I remember this as being one of the changes the Canadian government was going to make …basically getting rid of the maximum TDS of 45% (even though most lenders used 40% as their typical ceiling) and replacing it with some other maximum debt calculation. Any insights into this?

  4. In the article it states “The finance department also said it would require a minimum credit score and a maximum debt-to-service ratio for borrowers who want government-backed mortgages”. I remember this as being one of the changes the Canadian government was going to make …basically getting rid of the maximum TDS of 45% (even though most lenders used 40% as their typical ceiling) and replacing it with some other maximum debt calculation. Any insights into this?

  5. Back when the announcement was made to end the 0/40’s, you guys predicted a rush to buy before time ran out on them.
    In your opinion, did that rush materialize?

  6. THE SKY IS FALLING, THE SKY IS FALLING THE END OF MORTGAGES AS WE KNOW IT, FUNNY STUFF.
    How about you save 20% down and buy within your means people, you do not need a $500k first home, about you start out with a $200k condo, wake up people!!!!!!!

  7. John: You are not considering the costs (financial and time) when people move every few years as their family grows. Moving trucks, real estate commissions, house hunting, cleaning supplies, ect… By moving into the $500k home immediately, they can stay for 20,30,40 years.
    Although home prices have stopped growing in double-digit numbers, historically, real-estate values only goes up. Even if you only pay a small amount of Principal, it’s better than renting for 95% of people.

  8. Nick,
    How big of a family do you see people having? I rented while single, bought a small house when married, and moved up once for the kids. I have no intention of moving up again. And believe me, what I saved in interest payments by starting small is worth WAY more than moving costs. Keep in mind too, that many people will end up moving for work or other reasons so they won’t stay put for the long term. Why not move up then?
    Regarding buying being better for 95% of people, how did you come to that number? With a $400K mortgage (4.5%, 25 year amortization, 20%down) on a $500K house you are paying an average of $1500 in interest each month for the first 4 years. The actual payment is $2280. If you can rent an apartment for $800 per month that will suit in the early years, you’ll be much better off.

  9. I agree with AL above, there are huge savings to starting out smaller either renting or buying, than going for the large 500k house right away. A large house implies more maintenance costs, more furniture to purchase right away, etc… so one who is trying to save money will simply end up getting everything on credit and interest expenses will be greater than having a smaller place and putting more money in the bank each month.
    I see too many of my peers (early 30s couples) mortgaged and indebted to the max because they wanted the newer single family house instead of settling for a townhouse/condo more in line with their budget/income, and they cannot afford vacations, going out, etc..

  10. Hi JTH: Are you referring to a 5% cash back down payment mortgage at 5.25%?
    Hi Lisa: The chart will be updated in the next week.
    Hi Rob: Was it our article you’re referring to? If so it may have been an older article based on the info at the time. Here is a link to the new insurability rules.
    Hi Womp: Speaking only for ourselves, we did see a noticeable spike in 100%/40-year inquiries leading up to the deadline–but it was nothing overwhelming.
    Hi Al: Your example makes a point, although I’m not sure if one can compare a $500K house with an $800/month rental. :)
    In some markets you can most definitely make a case that renting is more economically attractive than buying. But it depends largely on the city and the borrower’s personal situation.
    Cheers!
    Rob

  11. Rob: Yes… one lender is doing a 5 year fixed @ 5.25% that does not require a downpayment. They are effectively giving you the 5% downpayment as part of your mortgage. However, this of course is still a high ratio mortgage that kicks in the default insurance premium 3.25%(GEMICO).

  12. Hey Rob,
    I definitely agree that comparing a $500K house and an $800/month apartment is comparing apples and oranges. But for a young person/couple starting out, they’re both fruit (a place to live). Why shouldn’t twenty somethings live in crappy little apartments. I even rented a room in someone elses house for a couple of years.
    Everyone should run the numbers for themselves and not take Nick’s assurances that they’re probably better off buying.

  13. Hi Al, I’ve lived in more modest “fruit” than that in my younger days and hear you loud and clear. The rent versus buy question has many facets though. We’ll have to do another story on it soon. – Rob

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