Rule of thumb in Canada is that a borrower needs a minimum of 5% down payment to purchase a home and that the borrower can only borrow 95% of the purchase price of the home. This is true, however there is a program available where the borrower can receive 5% cash back along with the 95% mortgage from the lender to cover the 5% down payment. Not all lenders offer this program so that is why working with a Mortgage Broker is essential for all your mortgage financing needs. The program works like this.
The average 5 year fixed discount rate is currently around 4.00%. This is the rate most borrowers will receive when choosing a 5 year fixed rate depending on the lender. The 5 year posted rate is 5.44%, This is the rate you will see posted with most banks. Under the Free Down Mortgage Program the borrower applies for a 95% loan to value mortgage along with a request for 5% cash back of purchase price. If approved the rate the borrower receives for their 95% mortgage is the posted higher rate (5.44%) rather than the discount rate (4.00%). This is how the lender can cover the cost of given 5% cash back to the borrower. On closing the 5% cash back is given to the lawyer along with the 95% loan to value mortgage proceeds to pay the vendor i.e. 100% of purchase price.
The guide lines are tighter for this product and the borrower needs a good credit score usually over 700. It is however a great way of getting into a property now rather than waiting to save up the 5% down payment. With mortgage interest rates historically low even the 5 year fixed posted rate at 5.44% is historically a very good rate.
The product is only offered on 5 year or higher fixed rate terms.