No More Zero Down

2008/08/17 Originally published in the Vernon Morning Star.

Last month CMHC made a very important policy change, they put a stop to both their 40 year loan amortization policy and their no-down- payment policy.

Amortization is a term used to describe the length of time it takes to fully pay off a mortgage or loan.

In years past, a typical amortization was 25 years. But in recent years, with prices rising so rapidly CMHC allowed 30 and 40 year amortizations. I would think this was in response to a consumer need for more affordability. The longer the loan amortization, the lower the monthly payments.

The no-down-payment option that they recently cancelled was also only offered in the last few years, and only to buyers with a high credit score. The borrower paid a higher interest rate in exchange for the privilege of not having to save for a down payment. I have never seen any statistics on this, but in my own practice I did not see this used to any great extent. The interest rates provided in the mortgages with down payments seemed to be more attractive to buyers, than the no-down-payment option.

Even though the rate of foreclosures was at the lowest number since 1990, CMHC felt it was prudent to tighten their policies so as not to duplicate what has happened with the sub-prime meltdown in the U.S. Of course, in the United States lenders were loaning 105%, 110% and more of the homes' value. They were counting on continual rising prices to protect the lenders, which of course failed to happen. We would not see this from Canadian lending institutions.

Our lending policies here have always been more conservative and cautious. Thank goodness. That looser lending policy in the U.S. turned out to be just plain destructive. Even homeowners who had little or no mortgages on their homes had the values of their homes pumme0000lled down because of competition from the foreclosure houses. It really is a shame.

Once again, we can appreciate the phrase "only in Canada, eh?." I'm pleased to know the Canadian lending policies are so much more responsible.

Jane Field works with RE/MAX Vernon. Jane has over 30 years experience in the Real Estate business. To suggest topics for future articles or to ask Jane questions, email her or call 503-3755.

RE/MAX Vernon | 250.503.3755 | Toll free 1.888.503.3755 | 5603 - 27 ST | Vernon | BC | V1T 8Z5 | Canada

Market Information for Buyers

No More Zero Down