developments in Canada, however, have brought the "nothing down''
concept out of the closet and into the realm of
In the early 1980s,
Robert Allen wrote a book called Nothing Down and heavily
promoted his ideas on the lecture circuit.
His success spawned a
number of American imitators, most notably a Vietnamese immigrant
named Tom Vu, who became the first big infomercial celebrity.
In the late 1980s and
early 1990s, Vu would appear on his over-the-top TV infomercials,
standing in front of one of his mansions or surrounded by
bikini-clad women on a luxury yacht.
He urged viewers to
attend a free seminar, where they would be encouraged to sign up for
expensive courses and learning materials.
Allen, Vu and their U.S.
imitators would promote buying distressed, tax sales, or foreclosure
properties, with little or no money down, at a fraction of their
market value and then flipping them before closing at huge profits.
For Canadian investors,
these American-oriented schemes never seemed to work.
Traditionally, there were
three types of nothing-down deals.
A purchaser could borrow
against other assets to raise funds for a down payment; a partner
could put up all of the deposit money, or a bank would lend a
borrower the entire purchase price.
Last month, the negative
connotations of nothing-down schemes faded into the background when
Canada Mortgage and Housing Corporation announced that it was
abandoning its requirement for a minimum five per cent down payment,
and would effectively allow Canadians to purchase homes without any
Last week, I was one of
the speakers at a homebuyers' seminar sponsored by the Greater
Toronto Home Builder's Association, the Toronto Star, TitlePLUS and
One of the speakers on
the panel was Paul Bimm, senior manager for new home construction
loans at the Royal Bank.
Bimm and I have
frequently appeared on buyer seminar panels together. Bimm explained
to the 250 attendees the details of two new nothing-down options now
Under the CMHC Flexdown
Mortgage, a minimum of five per cent down payment is still required,
but those funds can now come from:
funds not tied to the property
or grants from a party at arm's length to the purchase transaction
per cent sweat equity from an arm's length party
Payments on the borrowed
down payment funds must be included in the purchaser's total debt
In other words, the
borrower must demonstrate the ability to carry not only the mortgage
payments, but payments on the down payment funds as well.
A CMHC insurance premium
of 3.4 per cent applies to the Flexdown Mortgage.
Terms as low as six
months are available, and interest rates can be fixed, adjustable or
Royal Bank has introduced
its RBC No Downpayment Mortgage, insured by GE Capital. Under this
mortgage cash-back covers the five per cent down payment
rates for a five-year term are the bank's posted rates. In order to
cover the cash-back, the interest rates can be about one per cent
higher than non-cash back mortgages.
maximum purchase price is $400,000 with a mortgage ceiling of
$380,000. (The $400,000-cap is a significant increase from the
previous $300,000 CMHC maximum.)
insurance is provided by GE Capital with a 3.4 per cent premium
added to the mortgage amount.
must have 1.5 per cent of the purchase price in liquid assets to
cover closing costs.
The Bank of Nova Scotia
also has a down payment-free mortgage, funded with the mortgage
cash-back, and I expect the other banks will also follow suit.
As long as a purchaser
can afford the payments, there is now no stigma at all to a