Cash Back for Down Payment to go the way of the DODO Bird
A source at the bank confirms that it is scrapping the offer in light of banking regulator OSFI’s B-20 Underwriting Guidelines.
OSFI has decreed that “Cashback should not be considered part of the down payment.” Most Federally regulated lenders must therefore eliminate these offerings no later than October 31, 2012.
Cashback mortgages - essentially 100% financing - are a niche product that are seldom appropriate for owner-occupied purchases (sometimes they make sense for rentals). There are exceptions, but most of the folks who want them are simply a bit too eager to buy.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) supports OSFI’s call to end cash back products in lieu of 5% down payments. “Borrowers should have ‘skin in the game’,” it says.
There aren’t many federally-regulated lenders with 5% cashback down payment mortgages left, Scotiabank stopped there's September 15th, 2012 for example. Last checked; National Bank & B2B Bank were two of the banks still doing them (BMO as well I believe) & the Credit Unions ATB & Servus (but mostly at the branch level & peppered with rules & regulations). Also the Trust Company, Resmor Trust, now known as RMG Mortgages, with their smaller Cash Back options of 2% or 3% towards down payment, will also disappear as of Oct 31, 2012 Those options likely won’t be around for long. For a RMG mortgage it means you have to have a approval by October 31, 2012 or the program will not be available & you still have to qualify under the lenders rules as well as the new 25 year amortization.
Despite the above, banks (including Scotiabank) will continue selling cashback mortgages so long as the funds aren’t being used as equity, more like the current First National model. Buyers sometimes use cash back for things like land transfer tax, lawyer's fees, moving costs, closing costs, furnishings, landscaping, renovations, and so on; but the original min 5% down has to be shown in funds up front.
cash backs are also used for refinances to 85% loan to value (the official refinance limit without cash back is 80% loan to value on insured mortgages).
There's a chance that a small number of provincially regulated lenders - Credit Unions, as they are not governed under OSFI, will continue offering cash back down payment mortgages : however in the past the Credit Unions have been tougher on approvals.
If you are looking for a Cash Back Mortgage, you need to have your approval on or before Oct 31, 2012... as I do not think this will be resurrected anytime in the near future.
*information taken from Canadian Mortgage Trends Rob McLister, CMT*
