Great New Mortgage Products
2020 has been a challenging year for us all. Housing sales were going well pre-pandemic with modest price increases in many areas of the country. March arrived and the start of the spring housing market with people feeling optimistic until the country shut down March 15th.
Housing prognosticators predicted that housing would drop and take a couple of years to recover. While sales did drop by over 50% in April, no one expected house sales or prices to increase so quickly. In July CREA (Canadian Real Estate Association) announced that housing sales had increased by 26% up by 14% over last year. Prices in some areas increased by up to 10%.
“What a difference three months makes, from some of the lowest housing numbers ever back in April to the multiple monthly records logged in July,” CREA’s chief economist Shaun Cathcart said of the numbers.
While we were in the doldrums of April and May, mortgage lenders were hard at work trying to find ways to make it easier for borrowers and to encourage them to get back into the housing market when the lockdown was over.
As a result, several new mortgage products were introduced.
CASH BACK – Cash back mortgages have been around for many years . The idea is that after you have put down your savings as a down payment , many people are cash poor and can’t afford to buy window coverings, build fences or do things to improved their properties. They have to wait for their cash flow to build up again. Cash back offers a percentage of 1%- 3% back at the time of signing which can be used for closing costs, or any of the items mentioned above, A new twist on this was that you could get a $2000 cash back with a slightly higher interest rate but no claw back if you break the mortgage. . It should be noted that if you sell your home before the 5 year term is up on the 1-3% cash backs, you will have to pay back a portion of the cash back. For instance, if you sell the home after 3 years, you would have to pay back 2/5’s of the cash back for the 2 remaining years of the term.
PRINCIPAL ONLY TERM – Another interesting mortgage product that was introduced was the Interest Only Mortgage. For the first 3 months , the lender will allow you to pay the principle on the mortgage. As new mortgages are mostly interest payments this would save the average buyer of a $300,000 home, about $700 a month or $2100 for the 3 months. Once again, there’s a couple of thousand to pay down debts, or pay for window coverings
Finally, one lender spotted the problem with Purchase Plus Improvement mortgages. People find the perfect house but there isn’t a garage or perhaps the basement hasn’t been developed. They want to do this so they get a Purchase Plus Improvements mortgage which pays for the house with one cheque and then a second cheque is issued when the improvements have been made. The only problem is that most purchasers put all their money down on the down payment and don’t have anything for a deposit on the building project. Large companies understand the PPI program but small contractors can’t afford to carry the costs for a 4 week project. Now we have Purchase Plus Improvements WITH a Cash Back. Now you can plan to get the garage or basement done right away because you have the funds for the deposit.
This is great news for home buyers to get the home of their dreams. If you have any questions contact me at 403-836-1201