When the credit crunch hit one of the things the Canadian governement did to mitigate the damage to the economy is set a policy that no longer allowed CMHC, Genworth or AIG to insure mortgages for people trying to purchase a home with no money down.  Currently, the rules state that when buying a home, if the purchaser has less than 20% (of the purchase price) to put as a down payment, the bank/lender that is providing the mortgage must get mortgage default insurance.  Just a short time ago, the insurers (CMHC, Genworth and AIG) had programs that allowed purchasers with very good credit to purchase a home with no money down that still gave the borrower access to fully discounted rates.  This announcement made by the Canadian government in October of 2007 put a stop to fully discounted zero down mortgages.  Despite these changes made by the government of Canada, it is still possible to buy a home with no money down.

While it is true that these programs have been cancelled, there are other options that have been around for years.  By using a product called a cash back mortgage it allows first time home buyers when purchasing a home, to buy with no money down.  The process is a little different than the traditional 100% financing, but the end result is the same, the purchasers get a home with no money down.  The way this product works is that the borrower(s) agree to put 5% down on the purchase for the house.  On closing, the lender gives the borrower(s) a cash back incentive which is equal to 5% of the mortgage amount.  The borrower(s) get this incentive on an *interest free* basis but they have to sign an agreement which states that if they repay the mortgage in full prior to the end of the term that they will pay a pro-rated portion of the incentive back.  The 95% financing that has been arranged is done on the posted rate, which makes up for the interest free portion.  This higher rate tends to scare off a lot of first time home buyers, but you need to look at how the numbers work to understand that it isn't as bad as it sounds.

 As you can see in the examples above, there is about $130 per month difference between the way things work now (under the cash back program) to the way they use to work.  As mentioned before many people get scared off of buying a home with no money down, however it has to be noted that although the interest rate is higher with the cash back program, interest is only paid on 95% of the house value instead of the full value as with the previous 100% financing option.  This saves money for the borrowers and in actual fact the balance of the mortgage after 5 years will be lower using the cash back mortgage over the no money down option.  Taking into account that you will be paying $122/mth more on the cash back mortgage the net amount is that the cash back mortgage is actually cheaper by $383.48 in this example.

So, if you are wanting to purchase a home with no money down then consider using the cash back mortgage to accomplish this.  Buying a home can be a dream come true and first time home buyers shouldn't be afraid to use a cash back mortgage to get them into the housing market.  After the first 5 years their should be enough equity built up in the home that will allow owners to get fully discounted rates again.  So, the posted rates are only for the first 5 years.