Banks to End Cashback Down Payments
Cashback down payment mortgages are on the endangered list.
One of the biggest remaining lenders with a cashback down payment mortgage is Scotiabank, which announced today that it is terminating its “Free Down Payment” program, effective September 15.
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.
There aren’t many federally-regulated lenders with 5% cashback down payment mortgages left. Last time we checked, National Bank and B2B Bank were two of the banks still doing them. Those options likely won’t be around for long.
Despite the above, banks (including Scotiabank) will continue selling cashback mortgages so long as the funds aren’t being used as equity. Buyers sometimes use cash back for things like land transfer tax, lawyer’s fees, moving costs, closing costs, furnishings, landscaping, renovations, and so on.
Sidebar: There’s a chance that a small number of provincially regulated lenders will continue offering cashback down payment mortgages. We’ll see who’s left standing after October 31.
Courtesy of Canadian Mortgage Trends