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Wednesday, July 27th, 2016

Cashback Mortgages Live On – Find a Vancouver Mortgage Broker

Cashback Mortgages Live On

Adil J. Virani Vancouver Mortgage BrokerA month and a half from now, cashback down payment mortgages will be no more – at least for institutions regulated at the federal level anyway. Alternatively, these mortgages are sometimes called 100% financing. The scrapping of such financial products is the result of the new B–20 mortgage regulations, mandated by the OSFI.

In spite of this, most homeowners won’t be affected. Those with an honest Vancouver mortgage broker would likely have been dissuaded from using such a product in the first place.

And contrary to the federal level, provincially regulated organizations involved in real estate financing (such as credit unions) will not be prevented from underwriting cashback mortgages. One of these provincially regulated lenders is Meridian; it also happens to be the largest credit union in Ontario.

According to Rick Arnds, senior manager of emerging markets for Meridian, the organization decides who to give a cashback mortgage to on a case-by-case basis. He also said that, “we’ll hold on to it [the ability to underwrite cashback mortgages] until we’re told otherwise by our regulator.”

And as far as we know, the CEO of the Deposit Insurance Corporation of Ontario (the organization that regulates credit unions in Ontario) has no plans to remove cashback mortgages from the organizations involved in real estate financing that it regulates.

But even if the Deposit Insurance Corporation of Ontario doesn’t drop the guillotine on cashback mortgages, the Canadian Mortgage and Housing Corporation (CMHC) still may.

“CMHC supports the implementation of Guideline B-20,” said CMHC spokesperson Charles Sauriol.

If you are interested in a detailed explanation of the new guidelines, you would be wise to contact your trusted Vancouver mortgage broker.

For the meantime, cashback mortgages will live on in credit unions and other provincially regulated organizations. An honest Vancouver mortgage broker can advise you regarding which organization to deal with if you are interested in such a financial product.

Note that while cashback mortgages are not a good fit for most people, there are some cases where they are well-suited. These include those in the first time buyer segment whose mortgage payments are equivalent to their current home rental costs, other renters with stable jobs and no debt, and borrowers who have their money locked into businesses or other investments. A Vancouver mortgage broker can give you honest feedback regarding whether this type of product is suitable for someone in your position.

Up until now, Meridian has been pretty stringent about who qualifies for cashback down payment mortgages. It requires an excellent credit score, 2+ years of employment history, proof that substantial credit hasn’t been sought in the past, healthy debt ratios, and closing costs equal to 1.5% of the purchase.

At the root of these requirements is the fact that the number of people who are well-suited for cashback mortgages is very low. For this reason, an honest mortgage broker will make recommendations regarding such mortgages on a case-by-case basis. Young people with high mobility are particularly ill suited for such financial products. In addition, individuals interested in cashback mortgages typically don’t have much cash saved for other unexpected expenses.

Something else to consider is that cash back down payment mortgages are more expensive. In the case of Meridian, their cashback down payment mortgage rate is 0.05% above a good fixed rate with the term of 5 years; if you decide to use a product like this then you certainly won’t be getting the best mortgage rates in BC.

Those without equity are also less likely to make sacrifices and avoid a default, they have less to lose.

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