100% mortgage aims at first-timers
Excerpt from an article by Dana Flavelle - Toronto Star
Homeowners will start seeing even more flexible mortgage products, like Scotiabank’s no money down “100% mortgage,” as competition in the market heats up, industry members say.
Scotiabank announced yesterday it is the first of Canada’s big banks to offer the new down payment-free mortgage.
The Scotiabank loan is aimed at first-time buyers. The mortgage costs more to carry because it must be insured, which means buyers must pay premiums on top of their mortgage payments.
On a $250,000 home, the cost of borrowing the full amount, plus insurance, is $1,659 a month, assuming a 6% interest rate on the loan, according to Genworth Financial Canada, the mortgage insurance specialist underwriting the Scotiabank product.
That’s $98 a month more than a conventional loan with a 5% down payment, Genworth said. To qualify for the lower amount, the borrower would have to come up with $12,500 down, he said.
Scotiabank has had a free down payment loan on the market since 2003, but it’s structured differently and is less flexible than the new product, the companies said.The new 100% mortgage is just the latest in a series of new products hitting the market, including loans that lower the monthly cost to carry by extending the amortization period or deferring payments on the capital.
Most are backed by large global mortgage insurance firms, like Genworth Financial, formerly part of GE Capital. And many are importing ideas they’ve seen elsewhere.
In a rising real estate market, big mortgages may make sense if they allow consumers to become homeowners sooner, he said.
———————————————————————————