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  • Writer's pictureLendX Financial

All You Need To Know About No Down Payment Mortgages

If you are planning to apply for a mortgage, you may be aware that almost all mortgages need a down payment.  But you may wonder if there is a way to get a mortgage without making any down payment. It certainly is possible but even before we delve into the finer details we must share at the onset that it isn't a good idea to have such a mortgage. If you are still thinking of applying for one, you must take the help of a licensed mortgage broker for the same.

Though the Government of Canada put an end to mortgages with zero down payment in 2008, one can still get such a mortgage. All you need to do is borrow the amount which needs to be given for the minimum down payment. This amount is usually 5% to 10% of the total mortgage cost. You could use your credit card or another means of credit to borrow this minimum amount towards the down payment. But taking this loan is quite risky for the borrower as compared to a conventional mortgage.

Why does a person need such a mortgage?

There may be a couple of reasons why someone is looking for a mortgage without down payment. One of the major reasons for anyone to look at such a mortgage is when their savings (for the down payment) got used up towards another cause such as an emergency in the family, a medical reason, or these days because of unforeseen financial circumstances due to the onset of the global pandemic, Coronavirus.

Should one take up this option?

If you were to ask us we would give a straight-up answer as no. It is quite an uphill task to get such a mortgage.

No home equity: You will be in massive debt by taking up such a mortgage and that too without any home equity.

Steep CMHC insurance premium: if you take a mortgage towards which the down payment is made with borrowed money it automatically attracts high mortgage default insurance premiums. Though an insurance cover is a must for all down payments which are less than 20 percent, CMHC charges around .50% extra for premiums on such mortgages. It is however to be noted that CMHC is not issuing mortgage default insurance on mortgages that have been taken with borrowed down payments due to the pandemic situation.

Extra interest: Zero down payment mortgages come with another disadvantage of the borrower having to pay more interest. The amount that you borrow for your down payment will be levied a higher rate of interest which would easily mean thousands of dollars added to your interest payments every year.  

All said, a mortgage without a down payment is not the best way to buy your home.

 If you can, then avoid this method and take some more time and start saving for your down payment or buy a home that is less expensive for the time being.

If you are looking to buy a home and looking for the right kind of mortgage to suit your financial situation and personal needs, do write to us at LendX.

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