The worldwide financial crises have left a mark on the housing market and particularly in the USA. It is nigh on impossible for Canadians to get a mortgage without a down payment. Zero down programs have been canceled, many people assume that unless they have five percent available for the down payment, they will not be approved for a loan. The new mortgage finance project with cash back mortgages is quite stringent, however it still allows for zero down.

Canada Mortgage Bonds may be considered as an alternative to Government Bonds. They may yield slightly more and are one hundred percent safe. The principle and the interest on these loans are guaranteed by the Canadian Government and carry a credit rating of triple A/AA1. This program is a housing finance initiative to provide an alternative, competitive financial solution.

This is an alternative for those who want to benefit of the low housing costs in Canada, but are unable to afford the five percent down payment. This is also useful for those who have saved, but do not have enough money. The banks would want you to believe that these two products are the same, but this is not the case. There are in fact significant differences.

The interest rates on zero down loans were the same as on five percent plans. With the new cash back system; the rate is about one percent higher than on traditional products. Since the bank is giving you the down payment, it offsets the fact.

Another difference is the fact that there is a penalty due if the mortgage is broken before the term is up. The term is usually five years and as per a traditional mortgage, the three-month interest penalty applies. You also have to repay a portion of the cash the bank provisioned.

Weighing up your options carefully is key to any financial decision. An average home increases in value by about 5%. This could complicate you saving up for the down payment.

A cash back mortgage works out to be approximately. 25% higher than a traditional mortgage. However, you should consider the fact that you will not be repaying the cash back amount. Therefore, it may be an idea to buy now, instead of waiting for two years, when the value of the home would have increased by 10%. The cash back mortgage would be a cheaper option in this event and therefore an excellent choice for the discerning homebuyer.

However, in being aware of the terms of your agreement, you will see that it will not be a good idea to sell the home within five years. Only take such a loan if you are going to own the house and occupy it for a minimum of five years, or until your loan expires. Not doing this may result in your being liable for the cash portion.

The Canadian Mortgage and Housing Corporation introduced a new mortgage finance project in February, which aims to fund investors, provide investment opportunities, and at the same time reduce mortgage costs.

By: Adriana Noton

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