Banks push cashbacks

Banks push cashbacks

Brokers are feeling one last push by the banks to sell cashback mortgages before OSFI kicks it off their product lists.

“They know the product is going away and they want to fill up their pipe with as many of those deals as they can before they have to pull it,” Chad Robinson, president of Verico Best Interest Morgages, told MortgageBrokerNews.ca. “It’s still a hard sell for brokers, because of the rate.”

Earlier this month, The Office of the Superintendent of Financial Institutions confirmed that it will indeed move to scrub that hard-to-hawk offering from lineup of federally regulated lending institutions.

“With respect to the borrower’s down payment for both insured and uninsured mortgages, writes the regulator in its June 2012 guidelines update, “incentive and rebate payments (i.e., “cash back”) should not be considered part of the down payment.”

While early broker objections around those new rules focused on re-qualifying standards, few mortgage professionals have publically criticized the move to eliminate cashbacks.

That’s likely because of the same challenge Robinson points to: Rate.

“The demographic for the product is very small,” he said. “They have to have good credit (680 Beacon score) and a good job, but no down payment. That kind of client is more likely to be able to source the down payment through other means and they’re sensitive to the gap between the rate attached to cashbacks compared to prime rates.”

 

 

16 Comments
  • kevin J. Power, President Power Mortgages Inc 2012-06-27 2:53:26 AM
    These cash back mortgages are a poor product in my opinion anyway. Since they have been around I have done one. I have lots of inquiries but when explained and given options to the clients, they walk away from the cash back idea.
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  • James 2012-06-27 2:58:29 AM
    Cash Back mortgages are an excellent niche broker product. Who wants to send their client back to their bank to get a loan for the down payment? Why aren't more brokers concerened about losing more market share?
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  • Paul Therien, CENTUM 2012-06-27 3:18:19 AM
    Cash back mortgages certainly do fill a niche, they assist the consumer in the purchase of a home that they necessarily could not afford because they do not have down payment. With the much higher rate, and the potential additional penalty, there really is no long term benefit of the product for the consumer.

    If a consumer wants to buy a home, and they do not have the down payment... then they should save their money to get a down payment. It is the way that the vast majority of home owners in Canada have done it for generations. It might be harder today than it was last year, but it is still pretty easy to own considering only having to put 5% down. How will the consumer maintain the home if they do not have the ability to save for a down payment? What if they need a new furnace, roof, etc? Are we in truth setting up the customer for failure by encouraging them into a home that they cannot afford? If they do not have the financial ability to save for a down payment how is it that we expect them to understand the fiduciary responsibilities that come with home ownership? Sure, we get a deal done today… but what about the future?
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