Mortgage Blog
Your Choice for everything Mortgage in Vernon B.C.
Zero Down Mortgages
February 21, 2015
Traditionally, the expected down payment for a home has been 20% of the purchase price. That’s $20,000 down on a home that’s only $100,000 – and that’s a lot of money for what is, in this day and age, a very cheap house. In the last half-century, however, the idea of what a down payment looks like has changed dramatically.
Many banks will now offer mortgages with as little as 5% down – this is known as a high-ratio mortgage, and it does come with extra costs. The interest rates tend to be higher on these loans, because they’re considered to be riskier investments. On top of that, the lender will often require you to carry insurance on the loan, which also adds to the overall bill. That being said, between the lower down payment requirements, and longer available amortization periods, these changes have put home ownership within reach for a lot more people.
Finally, there are some private lenders or mortgage brokers who offer truly zero down payment mortgages – all you’re usually expected to cover when buying a house on these plans are the closing costs of the sale. This has made mortgages yet more accessible for even more people, and for some people it’s a fantastic option. But like anything else, it has its pros and its cons.
A zero-down mortgage can get you into your own home, and out of renting, faster than you could otherwise have managed. That means that you’re now building equity in your own home, rather than paying off someone else’s mortgage – which makes great sense for your financial future.
But if you buy a house with zero down in a declining market, it could mean that if you need to sell the house, you’ll get less for it than you owe in the mortgage. This is because without a down payment, you’ll have very little equity in the house built up. This can put people in some tough spots – see the recent American housing crisis for plentiful examples.
None of this is meant to scare you away from a zero-down mortgage. For quite a few people, they’re a wonderful option – but you should know the risks, and understand exactly what it is you’re getting into, before making the plunge.
Contact your Vernon mortgage broker today to learn about mortgage rates, mortgage renewals, mortgage refinancing, and to take advantage of convenient mortgage calculators.