FAQ: No money down and cash back mortgages in Ontario
Things have changed a lot in the last few years.
Most Ontario lenders will not provide a mortgage with 'no money down' any more. There are, however, still lenders out there that will.
What happened to the no money down mortgage?
Following the collapse of the subprime mortgage market in the US a number of years ago, lending restrictions became tighter in not only the US, but in Canada as well - even though there was no banking crash in our system.
A number of increased restrictions on mortgage lending have taken place, especially for FRFIs or Federally Regulated Financial Institutions (banks and many insurance companies).
Included in the changes are rules that say banks are no longer allowed to offer mortgages to people without at least a 5% down payment (for high-ratio, insured mortgages, otherwise - 20%).
What about 'cash back' mortgages?
Not all lenders are considered FRFIs, though. Most credit unions and many trust companies do not have to conform to these rules, although many follow the guidelines as a matter of fiscal prudence.
Some lenders offer 'cash back' mortgages, including banks. Very few of these will allow the borrower to use the 'cash back' rebate toward their down payment (including all of the banks). Often, they will advise that the money can be used for closing costs, buying furniture and renovations.
How does it work?
The lenders that do allow the cash back to be applied to the down payment have additional criteria that must be met for the mortgage to be approved. Typically, the borrower must have a strong credit history as well as having a high employment income. The property mortgaged will often have extra qualifying criteria applied, too.
Cash back mortgages that do not allow the rebate to be applied to the down payment may have less restrictive terms.
Also, all cash back mortgages will be of a fixed term, with a higher interest rate that recovers the rebate over the term. They also include penalties that are intended to recover all or a pro-rated amount of the rebate if broken before the term is up.
Looking for more information?
If you would like more information on no money down or cash back mortgages in Ontario, please get in touch!