So… the bank discouraged us to give a downpayment because obviously it was better for THEM to attach us 40 years. Now I see it because I am less naive…I learned something at least!!! But one thing is sure: I would never be able to do a job such like the bank counselor did with us, lying in our faces like that… yikes…

Next time I will give a downpayment, even if it’s only 5% !

http://www.financialpost.com/opinion/columnists/story.html?id=e09feb7b-cab4-45d2-a052-47dcc381fea7

Thanks for the comments everyone. I think the 5% down should be cash, not cash back. You should be able to demonstrate some ability to save prior to getting a mortgage. After all that will keep people from over paying so much on housing. If you can’t afford the $20,000 down payment you won’t be buying that $400,000 house.

Tim

«CMHC is a moral hazard.»

YOUR ARE JUST SO DAMN RIGHT!!!

I will pick up this and put it on my «never forget» list.

I do own a 40 years, 0 downpayment mortgage. And honestly, I do have a very hard time financially as I explain on my blog.

I didn’t knew about what SCHL was doing with our mortgage. Now I know that I didnt really understood what the bank «sold» us to be «the best mortgage we can have». Anyways. What we are doing is that we opted for accelerated weekly payments. Instead of paying monthly 1350$, we pay 380$ weekly.

That means that over a year, we pay 19 760$ in mortgage instead of 16 200$ (3560$ more only on capital). I would like this to be better, but right now it’s the best we can do. What it makes is that if our current interest rate doesn’t move, we will pay our house in somewhat 26-27 years instead of 40 years.

Why did we chose that kind of mortgage? Because houses prices are so high, it’s almost impossible to put aside a significant downpayment. What we did was we kept our money for downpayment to make necessary renos on the house: we added an income, so we hope when we will sell it that we get our money back and be able to put some cash on our next home. According to current market, we would be able to ask at least 60 000 more than what we paid when we bought this house. We plan to sell it within 18 months, and move to something smaller.

I just hope nothing crashes by this time…

CMHC is a moral hazard. What do the mortgage brokers, banks or other lenders care about the quality of their loans? The entire amount is back stopped by the government. They have nothing to lose, and consumers are pretty well unaware of the risks they take on because the CMHC premiums are just amortized right into the loan, they feel no financial consequence for their risk taking behavior.

Furthermore CMHC was setup to increase lending, but now is rather unnecessary, there are private lenders that offer loan insurance. If private providers want to back risky mortgages that’s their own problem, GenWorth (GE) financial is feeling the pain of lowering their fees and creating new riskier lending programs like 40 year mortgage terms.

CMHC has forgotten it’s mandate to help Canadians afford housing. They didn’t like losing market share to private insurers so they began competing with them. And why not lower insurance fees and offer insurance on riskier loans? They are backed by the government, they have nothing to lose!

At this rate CMHC will soon become larger then some of our national banks. CMHC is sucking up huge amounts of the stimulus package to prop up the housing bubble.

Housing prices are market driven, so by letting people take bigger loans with with less down and lower requirements all it does is add more buyers to the market, then prices go up for everyone.

It’s supply and demand, more buyers with more money = higher housing prices, and less affordability… exactly what CMHC was created to help fight.

We are cycling now in a consumption loop. The government’s only response to a bubble collapse based on over-consumption is to encourage more consumption rather than stimulate output and industrial production growth.

A housing bubble, whether you believe it or not, is only a small part of a larger problem. We collectively refuse to make the scarfices necessary to re-orient our economy producing rather than consuming.

At the very least increasing the CMHC insurance premium to more accurately reflect the risks would be nice. That could also solve the problem of having a country-wide policy for local issues. For instance, there is a much greater potential loss facing someone buying in Toronto or Vancouver right now than someone buying in Charlottetown, yet the mortgage insurance for all 3 would be 2.75% with the minimum down payment.

But I do have an issue with low down-payment allowances. 0% is ridiculous, as is 5% with 5% cash back (essentially 0%). Forcing CMHC payments on anything under 20% is a good incentive to raise more of a down payment, but I think anything less than 10% should make a mortgage very difficult to get. The down-payment is the best means of determining if you’re ready to own a home – if you’ve been able to save enough for a significant DP, then you’ve shown at least some ability to live within your means.