Zero Down Payment or Cash Back Mortgages are ways or solutions you can use when you want to buy a house but you do not have the 5% down payment. Mortgage Insurance rules in Canada requires for this purpose.  The bank gives you the money to pay the property before or after the closing day.  Sometimes you have to show that you have the 5% plus closing cost in your account three months before to the purchase.  It means you can borrow or get this money from other sources and after the closing day pay it. 

 

Conditions: 1. It is not a permanent product.  Banks offers this product once or twice a year. 2. To use cash back for a down payment you must have good credit with a minimum 650 Beacon Score or best in most cases, 3. Have an income to support higher payments because of a higher interest rate than your counterpart who has a traditional down payment. 

 

Differences : with a 5% down payment:  1.  Rates : Today someone with a down payment could be offered a 2.99 % fixed rate for 5 years however; if you need cash back for a down payment then your rate jumps to 4.85% for a 5 year fixed rate product. 2.  Monthly payments: On a $350,000 mortgage you would pay about $1,615/month at 2.99% rate and for the same amount but using 0% or cash back products about $ 1,957/month for the 4.85% rate.

 

At glance, the $ 342 difference  between monthly payments is the cost of buying a home without money but the true is that it is the money that you will be saving each month.  5% down of a $350,000 property is $17,500 the bank lends you the money and you pay it in five years.  The best : your own your house and after 5 years your home equity could be $50,000 or more.  Once the 5 year term is up, you will revert back to traditional financing qualifying rules and rates.

 

The advantages or disadvantages of this product have to be discussed directly with each client because its successful depends of the personal and financial circumstances or future expectation of each individual or family. Zero Down Payment or Cash Back Mortgages are ways or solutions you can use when you want to buy a house but you do not have the 5% down payment. Mortgage Insurance rules in Canada requires for this purpose.  The bank gives you the money to pay the property before or after the closing day.  Sometimes you have to show that you have the 5% plus closing cost in your account three months before to the purchase.  It means you can borrow or get this money from other sources and after the closing day pay it.