Cash Back or Free Down are the Boiler Makers of Mortgages

Canadian default insurance requires 5% down payment for qualified purchasers.  Those without a down payment who have the income and credit to qualify may obtain their down payment from the lender with cash back or free down programs.

This allows home ownership sooner because the down payment funds comes from the lender.

BUT, these no down programs have a price.  Just as adding hard liquor to beer elevates the alcohol content of the drink, these programs come at a higher price to the consumer.    The interest rate on the mortgage is higher in order for the lender to recover the cash advanced by the lender.

There is also the potential for a larger "hang-over"!   What is the "hang-over"?   If you payout a mortgage before its maturity (and the lender typically requires at least a five year locked-in term to recover their 5% advance) there is a penalty of the greater of three months interest or interest rate differential.   AND, a portion if not all, of the cash back or free down has to be repaid also if the term has not been complete before payout of the mortgage.

So, the moral of the story:  you can have home ownership sooner with a cash back or free down mortgage, but the price now and until the end of the term maybe higher than you expected!

For more specifics, ask phil at 403-630--7952.