There has been a lot of discussion and debate over the past while about the end of 0 down, 40 year (0/40) mortgages on October 15, 2008. When the announcement was first made in July, many wondered if there would be a surge in sales while buyers took advantage of 0/40s – our thoughts were that the impact would be minimal.
With sales up significantly this month, people are naturally starting to wonder if the end of 0/40 mortgages is responsible. Some have suggested that prices are lower and therefore more palatable to buyers, or that seller’s are becoming desparate and accepting "low-ball" offers.
We haven’t sold any homes for 0 down, ever. However, we don’t know the other details of our clients’ mortgages, and really have no idea how many have chosen the 40 year amortization period.
I wanted to find out more so I asked Gord McCallum, the broker at First Foundation Mortgages what his thoughts are on the situation:
We’ve seen some increase in interest in 0/40…but most of the zero down folks will choose 40 anyway. The thoughts at our office are that it has more to do with lower prices than anything. We’ve also seen a burst of activity from military personnel (coming back from overseas) and new to Canada, for some reason – maybe our foreign worker program has kicked into high gear.
Benjamin Tal from CIBC was at AMBA a couple of weeks ago and he said that Edmonton and Toronto are buyer’s markets now, and he thought that we had overcorrected in Edmonton, so maybe enough people saw that and started to make a move.
Incidentally, rates are going up big time this week as there is a capital shortage in the Canadian mortgage market right now. The Canadian Mortgage Bond fund only issued 8 Billion in liquidity instead of the usual 12 for this quarter…so the lenders are tigtening policy and raising rates. The bailout in the US could lead to some improvement but it could be a little while before we see it.
So there could be an upswing due to people taking the 40 year amortization period that we as Realtor’s are unaware of. However, the difference between 35 and 40 years is minimal. I think the increase is due to a few factors: lower prices, 0/40’s, and perhaps an upswing in net-migration. If you are considering buying, now would be a very good time to get a rate hold from a mortgage broker, since rates are about to go up.
