Jim Jamieson
Province
Scotiabank began offering 100-per-cent financed mortgages yesterday, a product they say will allow prospective home buyers to enter into the red-hot real-estate market, even though they don’t have a five-per-cent down payment.
The new product, however, was greeted with skepticism by realtors and financial planners — who expressed concern it may expose some consumers to too much risk.
The 100-per-cent mortgage, insured through Genworth Financial Canada, is available to first-time home buyers. It is offered with amortization up to 35 years, a term of six months to seven years and in variable or fixed rates at competitive levels.
Mortgage insurance from Genworth Financial Canada costs 3.75 per cent of the amount owed, which is rolled into the regular payments. By comparison, insurance on a mortgage where there is a five per cent down payment is 2.75 per cent.
In a zero-down scenario, a $289,000 purchase becomes, including insurance, a $299,837 mortgage at 6.6 per cent over 25 years. With five per cent down, a $307,000 purchase becomes a $299,670 mortgage.
Alison Strimas, vice-president mortgages for Scotiabank, said the money lending market is simply adapting to demand for more flexibility as the real-estate market in Canada continues to remain robust.
“There has been an evolution of products over the past few years,” she said.
But Strimas said only borrowers who can afford the new mortgage will be qualified.
“The banks are prudent lenders and they are in the business of keeping people in their homes,” she said. “It’s critical the borrower qualifies and can afford this mortgage.”
Vancouver westside real-estate agent Grace Kwok said she wondered if a zero-down payment mortgage is a good idea.
“It will bring more people into the market,” said Kwok. “It’s a good way to get into the market without renting. But are people going to get in over their head with properties they really can’t afford?”
Canadians are already in more debt than ever before. The national savings rate has fallen from 16 per cent in 1985 to negative 0.5 per cent in 2005.
Judith Mewhort, a financial planner with Montridge Financial Group in Vancouver, said that 100-per-cent financing — especially for first-time buyers — makes her very nervous.
“A first-time homebuyer probably has less of a cushion behind them, fewer assets, lower liquidity,” she said. “Even five per cent [down] makes me a bit nervous. There is too much movement in interest rates. If somebody loses their job or they become disabled, it’s a very thin line you’re walking. I’d be concerned about the amount of risk somebody is taking.”
© The Vancouver Province 2006
