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The Down Payment Hurdle

canadian dollar houseNine out of ten Canadians would rather own than rent, according to a new Genworth Canada study.¹ But the down payment often stands in their way.

A recent Vancity poll found that 60% of first-time buyers in B.C., for example, find down payment requirements to be a barrier to home ownership.

Nationally, 53% of homebuyers are worried they might miss their dream home because they’re short on the down payment.

With the average home costing $406,372, amassing even 5% down can be a chore for newbie buyers. That’s especially true with only 38% of Canadians having been able to save money in the past year, says Genworth.

It may surprise some, however, that half (50%) are saving a down payment in just 1 to 2 years. We suspect a lot of moms and dads are helping out in that department.

By contrast, almost 3 in 10 (29%) are taking 3 to 4 years to save their down payment. And a sizable minority are taking longer still.

Some just don’t want to wait that long, so they’re borrowing their down payment (sometimes from riskier sources). Vancity found that 16% would consider taking cash advances from a credit card or credit line to fund their down payment. (Please, if you have to pay 20% interest to finance a down payment, keep renting.)

With some Canadians willing to go to these lengths, it’s no wonder that Vancity launched its “Down Payment Helper Mortgage” last week. The product gives home buyers half of their 5% down payment (up to $12,500).


Details on the Down Payment Helper Mortgage:

  • Lending area: Greater Vancouver and Victoria, B.C.
  • Maximum mortgage size: $475,000
  • Available terms: 5-year fixed only
  • Mortgage features: Standard Vancity features (e.g., 20% annual lump-sum prepayment privileges)
  • Current rate: Best member rate (3.29% today) + 55 basis points (assuming 2.5% cash back for the down payment)
  • Offer dates: Must apply by June 30, 2014
  • Qualifications: The standard Vancity qualifications for CMHC or Genworth insured mortgages apply
  • Bonus offer: Vancity is giving people up to $1,500 extra cash back to offset closing costs
  • Available through: Vancity branches, mobile mortgage specialists and brokers

Unlike most cash-back mortgages, Vancity doesn’t charge a premium above the effective rate, which includes the cash back. The rate people pay reflects Vancity’s regular 5-year fixed rate plus a 55-basis-point surcharge. That surcharge is just enough to repay the bank for the “free” 2.5% down payment it gives people.

And a great feature of this — and all Vancity 5-year fixed mortgages — is that you can break the mortgage two years early and not pay an interest rate differential (IRD) charge. You just pay a 3-month interest charge. That said, early termination does require pro rata repayment of any cash back you received.

¹ Environics Research Group ran the poll, which included an online survey of 1,507 Canadians.

Rob McLister, CMT (email)