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Wednesday, July 27th, 2016

Cashback Down Payments set to meet their Maker- See A Trusted Mortgage Broker

Cashback Down Payments set to meet their Maker

New information suggests that mortgages with cashback down payments could go the way of the dodo, or Yanghzee pink river dolphin if you will.

Adil J. Virani Trusted Mortgage BrokerJust about every trusted mortgage broker in Vancouver has been advising against cashback mortgages for some time, but only in the last few years has pressure mounted so greatly.

Cashback down payments have been under a lot of scrutiny in recent years. Despite this, up until now, Scotiabank has continued to provide cashback on mortgage down payments. This will change as it’s “Free Down Payment” program is terminated as of September 15, 2012.

By the time this article hits the interweb, it will be too late to contact your mortgage broker and get a deal like this; but note that Scotia isn’t dropping the program out of the blue.

Under the looming shadow of the recent B-20 guidelines from OSFI, a source at the bank confirmed that it is scrapping the offer. For British Columbia residents interested in learning more about B-20, we recommend contacting a mortgage broker in Vancouver BC.

According to OSFI, “Cashback should not be considered part of the down payment.” while the new guideline only effects federally regulated lenders, Scotia bank is among them and so must drop any such offerings before October 31 of this year.

Mortgages with cashback essentially allow the borrower to finance 100% of their home purchase with debt. It’s a product designed for a niche market and typically not appropriate for homes purchased and occupied by the owner, and particularly not for the first time buyer. Exceptions to this rule exists such as in the case of someinvestment property, but most people interested in such mortgages are simply not yet in the right position to purchase a home.

Another downside is that such mortgages rarely offer anything close to low mortgage rates.

CAAMP, the Canadian Association of Accredited Mortgage Professionals, fully supports the movement of OSFI to bring an end to mortgage products with cashback. It asserts that, “borrowers should have ‘skin in the game’”; and just about any honest mortgage broker would agree.

Any honest mortgage broker worth their weight in beans is represented by the above organization. CAAMP Is the largest association related to the mortgage industry in Canada. It represents mortgage professionals across the country with members that include mortgage agents, mortgage brokers, mortgage lenders and mortgage insurers.

As times change, and the B-20 clock continues to tick, fewer and fewer mortgage originators will offer such cashback products. As of the last time we verified, B2B Bank and National Bank were in the minority as federally regulated lenders offering such options. Though they likely won’t continue offering such products for very long.

Even in light of the new federal guidelines, Scotiabank will continue to offer cashback mortgages, just in much more restricted circumstances; the cashback funds will not be allowed to be used as equity. Note that there are other uses for such funds like paying for renovations, furnishings, landscaping, lawyers fees and land transfer taxes. Contact a trusted mortgage broker in Vancouver for more information.

 

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