No more 30 Year Amortizations in Canada

[normtwofinger]

My wife and I saved 30k in less than 6 months. How? Moved in with the parents, sold a car to break even on the car loan, did not eat out, and saved our butts off. Instead of a DP we traveled.

[onetwo_threefour]

Originally Posted by albertGQ

I'm sure there are people that apply for mortgages, get their bureaus pulled, say their DP is a gift, then take out a cash advance from their credit card for the exact same amount as the "gift", deposit in their account to make it look like gifted funds, and get mom to write a gift letter. Viola! Down payment from non-borrowed funds!

Just because people do something doesn't make it legal or right. When you sign at the lawyer's office you have to make a statutory declaration that your down payment isn't borrowed. Lying on that declaration is a criminal offense and is mortgage fraud. Saying everybody knows that people borrow their down payment ignores the fact that this is the system we rely on and people circumventing it are a big part of the problem of defaulted mortgages.

[bizaro86]

While it's possible many people lie about downpayment "gifts", 1234 is right about it being fraud. and that's not something you'd want to admit to on a public forum. This is a situation where troutman's standard advice very much applies.

[chemgear]

Speaking of gifts, the OFSI has some notes about it in their new guidance:

http://www.osfi-bsif.gc.ca/app/DocRe...ines/b20_e.pdf

Down Payment

With respect to the borrower’s down payment for both insured and uninsured mortgages, FRFIs should make reasonable efforts to determine if it is sourced from the borrower’s own resources or savings. Where part or all of the down payment is gifted to a borrower, it should be accompanied by a letter from those providing the gift confirming no recourse. Incentive and rebate payments (i.e., "cash back") should not be considered part of the down payment.

[albertGQ]

Originally Posted by onetwo_threefour

Just because people do something doesn't make it legal or right. When you sign at the lawyer's office you have to make a statutory declaration that your down payment isn't borrowed. Lying on that declaration is a criminal offense and is mortgage fraud. Saying everybody knows that people borrow their down payment ignores the fact that this is the system we rely on and people circumventing it are a big part of the problem of defaulted mortgages.

I never said it was okay. Just that it's reality. A stat dec doesn't mean much. Plenty also buy rental properties with 5% down as second homes when it's really a rental property. Sign a stat dec claiming it's going to be owner occupied and voilà! You just bought an investment property with only 5% down

[darklord700]

I bought my house in 2004, the pre boom year, for $240K. I could have qualified for a $440K house in 2004 but decided to be fugal. What a big mistake. Now that $440K house is selling for $750K and my house is worth perhaps $430K. My family income has increased many times since than but still, I beat myself when I drove passed that 2004 $440K house every time.

Looking back now, everyone will think a $250K house is a bargain back then. But back then in 2004, people balked at anything over $400K and a lottery dream home was only like $750K.

My thinking is that houses are always expensive no matter when you buy them and how much money you make.

[onetwo_threefour]

Originally Posted by albertGQ

...A stat dec doesn't mean much. Plenty also buy rental properties with 5% down as second homes when it's really a rental property. Sign a stat dec claiming it's going to be owner occupied and voilà! You just bought an investment property with only 5% down

I'm a real estate lawyer, I'm not naïve. I know people lie on these things. Having said that, I would take huge issue with the first bolded portion above. Have you ever looked up the penalties for swearing false documents? My suggestion was that the idea of what Shermantor mentioned is not something that people should generally do. I'm not sure why you're disagreeing with me. Apparently you're suggesting that perpetrating fraud is common and therefore it is something that people can do to offset the difficulty in coming up with the required down-payment. My two cents is to educate people that this is illegal and could put you at risk and that is just as much of a 'reality' as what you have said about people lying on these things, so I don't know why you're arguing with me.

[albertGQ]

Originally Posted by onetwo_threefour

I'm a real estate lawyer, I'm not naïve. I know people lie on these things. Having said that, I would take huge issue with the first bolded portion above. Have you ever looked up the penalties for swearing false documents? My suggestion was that the idea of what Shermantor mentioned is not something that people should generally do. I'm not sure why you're disagreeing with me. Apparently you're suggesting that perpetrating fraud is common and therefore it is something that people can do to offset the difficulty in coming up with the required down-payment. My two cents is to educate people that this is illegal and could put you at risk and that is just as much of a 'reality' as what you have said about people lying on these things, so I don't know why you're arguing with me.

I'm not disagreeing with you at all. I know a stat dec is a legal document and lying on it is against the law. I'm just saying that reality is that people lying on it is common. Heck, even Shermanater's bank allowed him to do it.

When the clients go sign docs at the lawyer's and they slip up by saying something like "my parents are letting me take my time paying them back the down payment", I highly doubt many lawyers will halt the transaction. They'll simply pretend they didn't hear it, get all the docs signed and get paid.

[Rerun]

What a lot of people on here don't realize, unless you are a parent of adult children, is that most "loans" to your kids end up being "gifts" anyways.

Its a fact of life.

[yads]

Originally Posted by shermanator

I don’t think everyone who bought in 2009 is suddenly screwed, and I don’t think that every 20 something who buys their first condo is going to do it wrong, they just have to be smart about it.

I bought my condo in 2009 on a 35 year amortization period with 20% down). I had a roommate at the time who would be splitting the monthly cost, but that income source could not factor into the mortgage. Therefore my plan was to get the highest amortization at the time, and pay extra payments each month directly against the principal with the extra income when it was available.

3.5 years later, my 35 year amortization is down to 20 years. During this time I have been laid off, had the original roommate bail, got a new roommate, all while managing to cut 11 years off my amortization by increasing my payments by 10% twice, and making additional payments when money was handy.

Not everyone, but if someone has all of their equity wiped out or worse is underwater by the time their renewal comes around may be screwed. Sounds like you've done a good job in paying down your mortgage more aggressively. Do you think you are representative of the general mortgage borrower?

[Deegee]

Originally Posted by onetwo_threefour

Of course you did potentially engage in mortgage fraud in your situation since I doubt your bank was aware that your DP was borrowed from your parents, so this course of action is not one for general application. (not trying to be a jerk, just pointing out that borrowing the DP is not permissible, you have to have someone willing to give the money to you as a gift with no repayment required in order to be onside the rules)

You can be lent the down payment. It falls under the flex down payment rules, just to be clear.

[onetwo_threefour]

Originally Posted by Deegee

You can be lent the down payment. It falls under the flex down payment rules, just to be clear.

Sure, there are exceptions to the general rule, but I was pretty clear in stating that the general rule is that doing what Shermanator said is improper and he admitted that he got a gift letter but that it was actually a loan. I really don't understand people trying to qualify what I said into something else.

What was described in Shermanator's post is illegal unless the bank knew and approved of the borrowed DP, that's what I said in the post you quoted.

As for AlbertGQ's assertion that lawyers would just look the other way if a client let slip that the DP was borrowed, I'd say it's unethical and foolish and I have stopped acting on transactions where this has happened. I don't see myself as some paragon of virtue but I'm not putting my career on the line for a client who is trying to pull something.

Anybody recall that BMO is currently suing 200+ people in one giant mortgage fraud lawsuit? Those defendants are lawyers, mortgage brokers, realtors, and buyers that thought they could play the system or bend the rules a bit. (Admittedly there are a bunch of bogus allegations against lwayers in terms of what they did or didn't do to protect the lender as well IMO, but that's beside the point)

At any rate, as far as I'm concerned, nothing anyone has said contradicted my point that the transaction described and elaborated upon by Shermanator is improper and shouldn't be a model for others to follow IMO. Take it for what you will...

[onetwo_threefour]

@ AlbertGQ

Shermanator's bank didn't allow him to borrow his DP, he acknowledged that he gave then a gift letter and never told the bank it was a repayable loan. I suspect that Shermanator never realized he was doing something improper, especially if he told his lawyer what was really going on and the lawyer 'looked the other way.'. Unfortunately, that just makes both Shermanator and the lawyer complicit in a fraud.

I'm not trying to make anybody out as a bad guy, but pointing out the flaw with Shermanator's original posted story as a viable option for thosewho don't have a down payment and don't have a legitimate gift.

That's it though, as I said above, I believe my point stands.

[Robotic]

It will be interesting to see what the market is going to be like within the next 10 years. Especially when all the baby boomers are counting on their houses to retire from, or downsize. An increase in supply will only bring the market further down.

[Coys1882]

I have a family member who is a mortgage broker and she said she's had a ton of her clients, with a couple years left on their current mortgage, pay the penalty, to lock into a 30 year one before the deadline. That's the way I understood the story anyway - cool story bro I know.

[ranchlandsselling]

Originally Posted by Coys1882

I have a family member who is a mortgage broker and she said she's had a ton of her clients, with a couple years left on their current mortgage, pay the penalty, to lock into a 30 year one before the deadline. That's the way I understood the story anyway - cool story bro I know.

Well that makes sense if they're currently below 30 years and want to stretch it back out again while the 30 year amortization option is still on the table. Not sure what CMHC fees would be as I've never stretched out an amortization before. I'm sure there's a small additional charge.

My first thought it what a waste of money. Paying an IRD to pay more interest. But - everyone's situation is different. I guess on the upside it could have been a good refi time anyway (low rates vs. what they had prior).

[I-Hate-Hulse]

I thought this was an interesting bit that's been overlooked:

Mr. Flaherty announced Thursday that insurance from the Canada Mortgage and Housing Corp. and its private sector competitors will only be available on homes worth less than $1-million starting on July 10. This means that anyone wanting to purchase a home above that price must put down at least 20 per cent to secure an uninsured mortgage.

The article is your usual Vancouver/Montreal only matter BS but I think it'll have some real meaning here in Calgary/EDM/Sask where the "newly rich" are doing all sorts of stupid things in the name of status. Quite a few people buying houses beyond their means in the (overated IMHO) areas of Aspen in the $1M+ range just like they would buy an Audi A4 or BMW 3 series instead of a Civic or Accord.

http://www.theglobeandmail.com/globe...rticle4365313/

[ranchlandsselling]

Originally Posted by I-Hate-Hulse

I thought this was an interesting bit that's been overlooked:

The article is your usual Vancouver/Montreal only matter BS but I think it'll have some real meaning here in Calgary/EDM/Sask where the "newly rich" are doing all sorts of stupid things in the name of status. Quite a few people buying houses beyond their means in the (overated IMHO) areas of Aspen in the $1M+ range just like they would buy an Audi A4 or BMW 3 series instead of a Civic or Accord.

http://www.theglobeandmail.com/globe...rticle4365313/

The $1.0 million is interesting. I'd be curious how many people purchasing houses at that price range and higher only had a 5% downpayment. To me it seemed unlikely. To be leveraged with that much money (I know 95% of 400k and 95% of $1.2 million might be the same to some people) the interest rate risk on $1.2 million is obscene. Maybe some of these people have investments worth of offsetting the risk but when things tank like they have in the last three months look out!! Suddenly those SU, CNQ, ECA options you're used to getting aren't all that exciting.

Maybe house prices in the upper areas will fall the most. Everyone was thinking the amortization change would result in the lower end of the market, but maybe everyone now buys one step lower and the upper end gets hammered the most?

[albertGQ]

Ive underwritten quite a few Fort Mac mortgages where the PP is over $1M and all with 5% down. All young people too. Lots of consumer debt and short job tenure

[darklord700]

http://themortgageguru.ca/uncategori...-do-they-mean/

Interesting article about the shortened 25 year amort. You actually qualify for a bigger mortgage now than before because the debt service ration has also been raised.