Three Ways Around The Minimum Down Payment Rule

Since 2008 there have been a flurry of mortgage rule changes in order to taper the continuing rising market. The most recent change last year in 2012 was the elimination of zero-down mortgages. Previously a well-qualified buyer could enter the market with literally just their closing costs. Their mortgage could be financed up to 40-years amortization with absolutely nothing more than land tax and lawyer fees as the required amount. Fast forward today and there still exist three ways around the 5% down payment minimum, and I’ll argue here that each is absolutely crazy.

My motto? If you don’t have at least 5%, you should not be buying a house.

The first crazy way (and I’ll start with the craziest), is to go thru a credit union and go with a 5% cash-back. That 5% cash-back can be used towards the down payment. Why is this so crazy you ask? Well, using “real world” figures of a $300,000 home with 5% cash-back will make your interest rate 4.85% (in-and-around-that). At 4.85% on $300,000 purchase with 5% down (which is the cash-back, so really zero down), your mortgage payment per month is only $350 more per month than what it would be if you had saved the 5% yourself (2.55% variable vs 4.85% fixed). So, take $350 times 60 is $21,000 paid back in excess for the right to borrow the $15,000 cash-back. Oh and if you break this mortgage before five years expires you not only pay the 5% cash-back portion you still owe but you also pay a crazy penalty.

Crazy, right?

There’s an equally crazy method of doing this and it’s called “CMHC Flex-Down”. This allows a well-qualified borrower to use their unsecured credit line to finance…

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