Forget Posted-rate Cash-back Mortgages: Many borrowers with less than 20% down aren’t just short on down payment funds, they’re short on closing costs too. And that’s a problem, because lenders want to ensure buyers have at least 1.5% of the purchase price available for closing costs. If you can’t easily swing that, there are now lenders in the broker market offering up to 3% cash back at rates as low as 2.49%, just a smidge above the median 5-year fixed rate. On a $300,000 purchase with 5% down, that’s almost $9,000 cash in your pocket with an equivalent borrowing cost of just 1.85%. Compare that to the cash-back mortgages of yesteryear, which were often quoted at posted rates. A 1.85% effective rate sure beats liquidating retirement savings or borrowing money for closing costs elsewhere at a high rate. If you do get this kind of mortgage, know three things:
the lender will claw back a portion of the cash if you break the mortgage before five years
the home must be owner-occupied
you can’t use the funds for your down payment.
Unreasonable Test: Mortgage rates are now as low as 1.59%. Yet, rule-makers want people to prove they can afford almost 5%. If that doesn’t sound right to you, you’re not alone. The story…
National Bank cuts: Quebec’s leading bank lowered two fixed-rate specials on Thursday:
4yr: 2.54% to 2.44%
5yr: 2.59% to 2.49%
That puts advertised 5-year fixed rates below 2.50% at all six major banks for the first time in at least four years.
Buckling Economy: Four months into the pandemic, initial weekly jobless claims are still disappointing. On Thursday they jumped in the U.S. for the first time since March, to 1.42 million. Some view that as a sign the rebound is faltering. If they’re right, then: (A) bond yields are likely headed to record lows and, (B) stand by for more falling fixed rates.
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Hi Vincent, Uninsured mortgage policies vary more widely. Some lenders want proof of 1.5%, some don’t stipulate and some want more than 1.5% — enough to cover true closing costs, which can be materially greater than 1.5% if you factor in land transfer tax and all the closing fees.
Two more tidbits:
* For default insured Alberta applicants, many lenders require proof of only 0.5% (of the purchase price) in closing costs.
* Many lenders that permit borrowed closing costs required a 12-month repayment period to be included in the applicant’s debt ratio calculation
I remember how tight things were when I purchased my first home. All of the surprise costs can burn through your budget quickly as a first-time buyer. In hindsight, a cashback mortgage would have given us some much needed financial breathing room.
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So if it is a non insured mortgage do lenders still usually want to see the 1.5 % in closing costs?
Hi Vincent, Uninsured mortgage policies vary more widely. Some lenders want proof of 1.5%, some don’t stipulate and some want more than 1.5% — enough to cover true closing costs, which can be materially greater than 1.5% if you factor in land transfer tax and all the closing fees.
Two more tidbits:
* For default insured Alberta applicants, many lenders require proof of only 0.5% (of the purchase price) in closing costs.
* Many lenders that permit borrowed closing costs required a 12-month repayment period to be included in the applicant’s debt ratio calculation
I remember how tight things were when I purchased my first home. All of the surprise costs can burn through your budget quickly as a first-time buyer. In hindsight, a cashback mortgage would have given us some much needed financial breathing room.