Loewen Group Mortgages “Down Payment Assistance Program”
We are now able to offer our clients a creative lending solution to assist in increasing your down payment to qualify for a mortgage based on pre October 17th lending guidelines which will help avoid the costly CMHC mortgage default insurance premiums!
You’ve no doubt heard that the Finance Minister has tightened the guidelines on mortgages qualifying with less than 20% down now making it now MUCH harder to qualify for a mortgage.
As of Oct 17th – any purchase with 19.99% to 5% down payment must now pass a “stress test” by qualifying at the Bank of Canada’s “Posted Rate” of 4.64%.
*** This won’t be the actual mortgage rate you receive – this is just for qualifying purposes.
What does this mean in terms of the mortgage amount you can qualify for? Let’s use the below example to outline the average purchase and affect.
THE PROBLEM: Many are already finding it VERY difficult to find a home they desire at the $530K purchase price. We can then only cringe (and offer you a hug) as your search to find a home you desire at $418K is now seeming impossible … that is why we have created LGM’s
“Down Payment Assistance Program”
If you’re a qualified buyer with 10% down payment – we will top-up your down payment and lend you a further 10% bringing your down payment to 20% and avoid these new restrictions allowing you to still purchase at $530K pre Oct 17th guidelines.
Using the below example of a $350K purchase – which the math holds true regardless of your purchase price, the buyer on the left with the new guidelines would no longer qualify using the 4.64% qualifying rate. The buyer on the right – with the same home purchase price – has a mortgage payment of only $25/month more, BUT with 20% down now can qualify using the “contract rate” of the 5 year mortgage term at 2.49% and thus was able to buy the home.
It is notable of course that the 10% “down payment assistance” is at a higher interest rate with a net cost of $3600 interest in this case when compared to the 1st mortgage rate of 2.49%, BUT this solution has allowed the buyer to avoid the $7,560 cost of the CMHC premium. The savings have fully outweighed the cost!
The exit strategy would then be to simply refinance the mortgage in the 2nd year to pay back the borrowed down payment and move forward now with having avoided the mortgage default insurance premium. You can then celebrate being able to purchase the home you truly wanted much sooner than you would have under the new rules!
Why not wait to save up the additional 10% for the full 20%? You “COULD” just try to continue and save another $35,000 of after-tax dollars to come up with their own 20%. It’s worth noting: at $500 a month savings that would take another 5.8 YEARS of savings to reach that … which then you run the risk that the $350,000 house will no doubt cost $450,000 at that time. For more information on where the Burlington market stands, have a look here.
IF the home has not appreciated enough to repay the borrowed funds by year 2, we will simply renew those funds for another year. You, the home owner continue to enjoy paying down principal instead of renting and enjoying the tax free benefit of home appreciation. This of course is one of the great perks of now being a home owner through the Loewen Group Mortgages and our “Down Payment Assistance Program”. For more information about 2nd Mortgages, read this.