Posted by genieSABRE on Mar 19, 2012
TD Bank to Goverment of Canada

TD Bank to Goverment of Canada

Source: Hannif Highclass
Publish:MY BLOG: Toronto Real Estate: March 03, 2012

 

Raise Minimum Down Payment For Home Buyers!

Brokers are guaranteed to bristle at the suggestion, but a top bank economist is among the first to advocate for an increase in the minimum down payment to 7 per cent instead of 5 – an option with significant implications for first-time and cash-back clients.

Zero Down Payment

CMHC: In addition to the traditional 5% minimum down-payment requirement, CMHC’s flex down program allows the 5% down-payment to come from different sources such as lender cash back incentives, lines of credit/credit cards, arm’s length personal loans or gifts, and 100% sweat equity from either the borrower or another party who is in an arm’s length position for the purchase transaction. Payments on borrowed funds must be included in the Total Debit Service (TDS) calculation. Applicants must have impeccable credit. They are required to show the ability to cover closing costs of at least 1.5% of the purchase price from the applicants’ own resources. These funds can be borrowed as long as any associated payment amortized over a 12 month repayment period is included in the TDS calculation.

“We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada’s medium-term economic outlook,” Craig Alexander, chief economist with TD Bank, said in a report late last week. “It also suggests that further actions to constrain lending growth may be prudent.

“If the overvaluation was fully unwound rapidly, it would be three times the correction in the early 1990s.”

While other economists have called for further tightening of the country’s mortgage rules, Alexander is among the first to call for an increase in the minimum down payment to 7 per cent from 5 per cent.

He has also broached the idea of instituting a minimum interest-rate floor for income tests, focused on ensuring borrowers can handle a higher rate environment. Another, more commonly debated option, is shortening the maximum amortization to 25 years from 30.

Brokers, and their associations, have roundly rejected the need for more stringent mortgage rules, despite near-record high levels of household debt relative to income.

That situation became even less sustainable after the Central Bank decided to hold its overnight rate steady last month, further raising concerns that consumers would move to raise their debt levels instead of cutting them.

Alexander is now pegging the overvaluation of Canadian home prices at between 10 and 15 per cent.

He argues that the real culprit in spiking debt levels has been growing home purchases in the current low interest-rate environment.

“The outlook is for mild employment and income growth in the coming year, implying that households will gradually become more lever-aged over time,” he said.

 


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Related Articles of Interest

Canadian Homebuyers Getting Priced Out Of Market

Canada’s sub-prime mortgage time bomb

Big 5 Banks Drop Mortgage Rates

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One Response to “TD Bank to Goverment of Canada”

  1. Somnath says:

    I bought the Nolo 1st Time Homebuying Guide. Although it was also not too in depth on a lot of tocpis (afterall, it is an overview for all kinds of homebuyers), it made me feel more confident that it had at least flagged every major issue and I could further investigate as my home search became more concrete.Even though I paid less than three dollars for the Kindle download, I still can’t recommend this book to anyone looking to educate themselves on the homebuying process, unless you literally have no idea of what a credit score is or that there are websites that exist on which you can search home listings.

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