How to obtain a zero down payment mortgage in Canada

It hasn't been easy for prospective Canadian home owners to get zero down payment mortgages since 2007 or 2008. Officially, prospective home buyers need at least a 5% down payment - and with a sluggish international economy, Canadian lawmakers could be set to restrict borrowing requirements even further. However, it is still possible to obtain a mortgage without a downpayment in one of two ways.

Zero down payment mortgage Canada

First of all, some lenders offer 'cash back mortgages', where the bank bundles a mortgage for 95% of the value of the property with a line of credit for the remaining 5%. Additionally, it is possible to obtain a line of credit before obtaining the mortgage, simply transferring the line of credit funds into a chequing or savings account and leaving it there for 3 months prior to taking out the mortgage.

For the home buyer, this basically works the same as a zero down mortgage, but ends up costing more than a conventional mortgage. This is still the best way to go for a first-time home buyer in Canada who doesn't have the cash on hand to purchase an ideal property. Also, because the line of credit is a different borrowing vehicle than a mortgage, the new home owner will technically start off with 5% equity in the property they purchase. With some of the lowest interest rates ever seen, and little chance of them rising in the near future, this is a great way to jump into the property market.

Here is an example of how a Canadian home buyer could put this strategy to use, purchasing a $200,000 house:

1. The bank or credit union lends 5% ($10,000) as a down payment. Your payments would be roughly $150 a month on that in order to pay back the bank over the next 5 years. Your interest rate on that works out to roughly 5%.

2. The bank or credit union gives you $190,000 mortgage for the condo and the payments are roughly $930 per month. The interest rate is around 4.0%.

3. You still need to show the bank you have 1.5% of the purchase price in the bank in order to pay for notary fees and moving costs.

4. You end up paying $150 $930 = $1080 per month for your new home; this is higher than you would with a 5% downpayment, but not by much!

Zero down payment mortgage Canada

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