Broker debate: 100 per cent financing

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Brokers are divided on one product that may be on the chopping block if OSFI B-21 guidelines get the go-ahead following their formal review.

“Personally, I don't think anyone should be allowed to Purchase a home if they don't have at least 5 per cent of their own funds as a down payment, so this change is long overdue,” Max Cafissi of CENTUM One Financial Group Inc. wrote in the comments section of MortgageBrokerNews.ca. “I have never financed a home 100 per cent and I have been a broker since 1989.

“If you can't save 5 per cent, or get a gift from your parents, you shouldn't be purchasing a home.”

OSFI’s B-20 guidelines, enacted on November 1, 2012, prohibited any federally-governed financial institution from offering 100 per cent financing on homes. However, credit unions – which are provincially regulated – have been  able to do 100 per cent funding.

And for now they will continue to do so until OSFI’s B-21 guidelines pass. But some brokers refuse to take advantage.

“I fully agree with Max Cafissi, if borrowers cannot have 5 per cent savings or gifted funds for down payment, they are NOT ready to move forward purchasing,” Angela-Wong Liao of Invis The Money Lady wrote.

Nevertheless, some industry players believe exorbitant home prices  have forced buyers to mortgage 100 per cent of their homes.

“You're both basing your views on ideology. Especially during boom times, and clients can't save as fast as prices rise, $0 Down makes huge sense,” one anonymous commenter wrote. “I've had clients end up with 100k equity in a few short years, where the savers were still sitting on the sidelines.

“Also, paying 5 per cent, rather than the discount rate, they're in a better position to weather a rate increase, as they were already paying it.”

Related:

B-21 to erode credit union competitive advantage
Brokers discuss client disclosure and credit unions
  • Barb on 2014-06-30 11:20:53 AM

    “If you can't save 5 per cent, or get a gift from your parents, you shouldn't be purchasing a home.” Really? so if you have affluent parents who are willing to fork over thousands, you're ready? but if you make sufficient to cover gds/tds but don't have parents who can gift you a dp, you're not ready? I don't see the logic there.

  • Paul Therien - CENTUM on 2014-06-30 12:04:20 PM

    The rule that allowed Canadians to finance up to 100% of the purchase price of the home is a relatively recent addition to the mortgage industry that was brought in to align our lending policies with the United States. People need to consider that when a person purchases a home at 100%, if you include insurance premium… in some cases people owe as much as 104% of the value of the home. Some people might say that it doesn’t matter when home prices continue to escalate, however that was the thought pre 2008 as well. The market adjustment hurt a lot of people. Consider for instance Calgary, where for several years people were (and in some cases still are) in a negative equity situation after 2008.

    Asking that buyers have some “skin” in the game is not a bad thing. Does it mean that for many they will have to save for longer before they purchase a home? Yes. It also means that the consumer will have learned the value of savings and planning for their fiscal future, which overall is better for the long term sustainability of our economy. Consumers that have the ability to save and create a lifestyle through careful planning are much better at weathering major life changes, or economic down turns, than those that borrow themselves into a lifestyle.

  • Omer Quenneville on 2014-06-30 12:26:16 PM

    “some brokers are not taking advantage“...
    While I personally feel 5% is too little, I would like to see 10%, I am not about to hold back information to someone that wants a product simply because I don't approve. Who the heck am I to decide what is good for a client. While I always have an opinion and like to advise my clients. Ultimately it should be the clients choice not the brokers. This is the equivalent to TD only offering collateral mortgages and not having to clearly disclose. They decided for their clients what is best.

  • Omer Quenneville on 2014-06-30 12:28:36 PM

    “If you can't save 5 per cent, or get a gift from your parents, you shouldn't be purchasing a home.” While I personally feel 5% is too little, I would like to see 10%, I am not about to hold back information to someone that wants a product simply because I don't approve. Who the heck am I to decide what is good for a client. While I always have an opinion and like to advise my clients. Ultimately it should be the clients choice not the brokers. This is the equivalent to TD only offering collateral mortgages and not having to clearly disclose. They decided for their clients what is best.

  • Ron Butler on 2014-06-30 1:17:12 PM

    Omer raises a good point, we are brokers, we can ask adequate questions to address suitability of the "zero down" mortgage but after that it's the consumer's decision and it's our job to fulfill that decision to the best of our abilities. "Who the heck are I to decide". That is exactly right, once all the pros and cons are discussed we are here to execute the clients wishes.

  • John Van Driel on 2014-07-02 9:21:44 AM

    Agree with Ron & Omar, with one caveat: I will point out to the clients that wish and qualify for 100% financing, that they will likely NOT be ble to refinance, until their term is up, with present 80% lending rules.

  • Daniel McKay on 2014-07-04 1:50:05 PM

    I agree that anyone saying that they are okay brokering 5% fully gifted down payment deals, but 100% financing should be outlawed is being a hypocrite. I suppose these same brokers have never brokered a flex-down/non-traditional down payment, or cash-back deal then as well.

  • Dave Cooke on 2014-07-04 6:54:44 PM

    As a broker in Calgary, I think that the 100% financing serves a purpose. I have had numerous people who are doing fine and decide to buy a new car/truck. They put a significant deposit down and get the vehicle. A month later, their landlord announces that he needs their accommodation for a relative and they have 60 days to move. Try to find a new rental property in this market.
    Someone with a valid reason for not having saved up a down payment should be allowed to use this program if their beacon score is high enough to show they are a good risk.

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