10 January 2011

2.    Penalty calculations
It often happens so that when the posted rates go up, the interest rate differential (IRD) penalties fall.
That’s why many borrowers, planning to refinance, were upset when the banks didn’t raise their rates. Some borrowers had to pay thousands more because of this. Of course, the banks knew about such consequences when they were making their decision.
3.    Cash-back down payment mortgages
Generally, cash-back down payment mortgages are considered to be an equivalent of 100% financing, though there is certain difference.  
First of all, the interest rate is higher. Now the cash-back mortgages is sold at posted rate (5.19%), while insured 100% financing was usually offered at the lender’s best rate.
In addition to it, most cash-back mortgages have a clawback option. In other words, if you break your mortgage before maturity, the bank will take back a certain amount of initial cash-back.
The deal is that there are no insured 100% financing in Canada since October 15, 2008, that’s why the cash-back down payment mortgage is the only option for those who want a zero down payment.
So if you have a good credit history, some savings for closing costs, a stable job, and you want to buy a house now, then it’s a good idea to consult your mortgage broker concerning a cash-back down payment mortgage. Ask your broker if it’s really profitable for you and don’t hurry making any serious mortgage decisions.

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