How to buy a house in Canada with no money down

10 posts


Canadian news agencies ignore this and continue peddling disinfo from real estate agents and talking heads from banks.

To quote Garth Turner:

Niccolo and Donkey

I just read this article. The ending is best:

Niccolo and Donkey
Ottawa to tighten mortgage rules

The Globe and Mail

January 16, 2011

Ottawa is clamping down on the mortgage market with a package of measures to deal with Canadians’ record levels of household debt.

The Finance Department is expected to announce that Ottawa will stop backing mortgages with amortization periods longer than 30 years, cutting off support for the 35-year mortgage. In addition, the announcement by Finance Minister Jim Flaherty is also expected to reduce government backing for home equity lines of credit.

The Conservative government would not comment on the subject of the expected Monday announcement but details were confirmed by sources familiar with Ottawa’s plans.

Bank of Canada Governor Mark Carney, the superintendent of bankruptcy and other officials have said in recent months that Canadian households need to shore up their finances in case of a rise in interest rates. Though longer amortization periods reduce monthly payments, they greatly increase the amount of interest paid over the life of the mortgage and make it harder to build up equity.

In addition to cutting mortgage terms, Ottawa is also expected to take action to reduce the rapid rise in home equity lines of credit, or HELOCs. The government will do this by clamping down on the insurance that Canada Mortgage and Housing Corporation offers to the lines of credit.

The government is also planning a third measure that will reduce how much Canadians can draw on their home equity. Last February the Finance Department announced that it would lower the maximum amount Canadians could withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. It is now expected to reduce that maximum to 85 per cent from 90 per cent.

Observers have been speculating that Finance Minister Jim Flaherty would take steps to tighten mortgage credit in the next federal budget. The timing of the move suggests concerns are growing in government circles about household debt and its impact on the economy.

It’s not the first time the Conservative government has tinkered with the mortgage market. In 2008, Mr. Flaherty announced Ottawa would no longer back 40-year amortizations, with a goal of cooling down a hot real estate market and preventing the emergence of a housing bubble in Canada. At that time, the government said it would also back only mortgages where the buyer has put down at least 5 per cent, effectively eliminating zero-down mortgages.

Last February the Finance Department lowered the maximum amount Canadians could withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. Mr. Flaherty also introduced a measure requiring borrowers to qualify for a five-year fixed-rate mortgage, even if they sought a variable mortgage at a lower rate. Until that change, homebuyers only had to qualify for the higher of either a three-year fixed-rate or variable-rate mortgage.

Ottawa’s concerns about home equity was renewed by statistics published late last year that showed the debt levels of Canadian households have risen to record levels. The average debt per household, including mortgage and credit card debt, reached $96,100 in 2009, while household debt reached 146 per cent of personal disposable income. That trend has been driven by borrowing on mortgages, as well as consumer debt such as credit cards.

A rise in interest rates, or further job losses, could put the economic recovery in peril, given the high debt load of consumers. Officials with the Ministry of Finance began meeting with the banking sector in the fall, during pre-budget consultations.

Ottawa's recent actions have been moving policy in the opposite direction that it was headed prior to the U.S. subprime crisis. As the subprime crisis morphed into an economic recession, the federal government took steps to make it easier and cheaper for banks to lend mortgages in Canada in order to keep credit flowing and the economy strong. In 2006, the maximum amortization period in Canada was extended to 40 years from 25. Now the government is trying to cool a market that it helped to fuel.
President Camacho
Well, at least you don't have the whole racial angle as pronounced up there, that was a big reason why lending standards were manipulated by the Feds and then collapsed.

For example I know of a Hispanic branch manager in Atlantic City who was found to be "discriminating" against Hispanic clients (mostly Hondurans, etc) because they were usually paying a higher interest rates than whites. And the majority of this branch manager's clients were Hispanics-- he had the community locked down.

Of course, with the way that compensation (the yield spread) is structured for loan officers, it's necessary to charge a slightly higher rate for a lower loan amount-- which is exactly what was the case with these Hispanics. That may not seem fair for the ol 'spics, but that's the way the business is.

They probably couldn't have gotten a home loan from anyone else due to lack of English skills, or if they did deal with someone else probably would have been ripped off worse with some balloon rate or interest-only contract. But "discrimination" was detected by some algorithm which had the guy indicted, even though I don't think any of the actual customers complained. If he had maintained a "diverse" group of low-income buyers and done the same thing nothing would have happened.

Of course, this may all be moot, as the Feds are soon radically altering the compensation structure for loan originators:

Has the Canadian government done anything to address the mortgage business?

Canada isn't really doing much wrt laws about loan originators.

(note, I'm not attacking you here, just trying to show that the point of your post kind of misses the point of why it all happened to begin with)
The housing bubble in the US asymmetrically effected non-whites, but the same housing bubble and collapse happened in many other countries and this pattern does not re-appear.

The fed embraced credit expansion in the face of the dot-com crash, and the factors in the economy were right to manifest itself as a housing bubble. Credit expansion was meant to stave off a major recession/depression, but it resulted in an unsustainable boom.

When you flood a market (such as the credit market itself) with counterfeit money, that segment of the economy will grow quick and fierce. It attracts goons and loose play. Be it irresponsibility in handing out home loans, or creating a "high-tech" company that shuns revenue and will prosper because "technology is the wave of the future! The NASDAQ is at 4000, man!"

During the boom, everyone credits their success as a result of their ingenuity. When the crash happens, they blame their poor circumstances on everyone else.

Who in the US was complaining about "irresponsible lending" that was building the run-up in housing prices in the US? No one. In fact, these lenders were helping in the facilitation of a housing frenzy. Once the prices started plummeting, everyone started blaming everyone else. Where were the "irresponsible lenders" in times past? Why is it that they just suddenly popped up in the US, amongst other nations?

How could the lenders embrace responsibility when every loan they give out is backed 100% by the government? What's the point in being responsible when you have fannie and freddie?

In Canada, we're about to start blaming the banks. People on VRMs (variable rate mortgages) could see their rates double by the end of the year. Everyone here has learned that a 3% mortgage has always been the norm. Everyone has had the price of their house go up and they've given themselves a pat on the back. Once there is a collapse in pricing, everyone will hate the banks and lenders. Right now, these irresponsible lenders are just helping people invest in their future. Tomorrow, they are evil scourge.

Addressing "irresponsible lenders" is just treating a symptom of larger problems:
1) Unbacked increases in the money supply. Money which must be used by the people of the nation, by law.
2) Moral hazard

President Camacho
I understand all this... I wasn't trying to explain the cause, but rather the insane and ironic effects that come when the Feds get involved in ensuring "fair play" in the mortgage market, something which Canada will likely experience very soon if what you describe about VR mortgage rates skyrocketing is true.

Of course the problem is irresponsible individuals, especially borrowers who don't do their homework. I've seen guys pulling down $20k/month going with 30 year mortgages or even I/O loans to minimize their monthly payment "so I can stay flexible". Never mind the fact that they'll pay 2-3x more interest over the life of the loan, it's essential to save a few hundred a month right now rather than save $300,000 in interest over the life of the loan (even accounting for future inflation, it's still a much more significant savings). It's a fundamental lapse of long-term planning on the part of all democratic societies, from mortgages to healthcare to "jobs".

Your government will step in and try to "fix" these problems so the loan industry gets more fucked than ever. The only thing that can save Canada from America's path is maybe its timid and generally ambivalent political culture.

Have to post this one:

Garth Turner was an MP. He now does (good) personal financial advice, and his blog focuses in on the housing market in Canada.

courtesy of garth
Niccolo and Donkey
Niccolo and Donkey

From your Turner link:

What kind of people are even that deep that they go up to 50%? I'm only at 20% of gross.