First time homebuyers in Hamilton may be wondering if they’ll ever be able to afford a home. On March 18, 2011, the mortgage lending rules changed, making it slightly more difficult for first time home buyers to qualify for a mortgage. The one change that has a direct affect on first time home buyers is the amortization, which went from 35 years to 30 years. Will the real estate market in Hamilton suffer?  Despite the negative media reports, the real numbers, when crunched, are these: Assuming a 4 per cent interest rate, this means you will pay approximately $34.72 more each month for every $100,000 in mortgage.

Some lending criteria didn’t change. Financing is still allowed up to 95% of the value of the home, and condo fees are calculated the same way – only half are used to determine your total debt. You can still borrow your down payment and many lenders still offer the 5% Cash Back mortgage. With a Cash-Back mortgage, the client receives a rebate on their mortgage at the time of closing of the mortgage. This rebate varies anywhere from 1% to 5% of the mortgage amount depending on the lender and term chosen. The money from a Cash-Back mortgage is especially handy for the first time buyer who needs extra funds to purchase home improvement items such as blinds, carpet, appliances, or even furniture. Thus, first time buyers are the number one consumer of Cash-Back mortgages in Canada.

This is also an option for first time home buyers who have the minimum down payment. You can get the cash you need to help pay your land transfer tax, lawyer’s fees, moving costs, closing costs and other expenses. For example, if your mortgage is $200,000, which is about average, your cash back at closing would be $10,000.

When a Cash-Back mortgage makes sense

  • You have saved up enough money to purchase your home, but may be a little short after the mortgage closes. The Cash-Back acts as a buffer to get you through the first couple months as a new home owner.
  • You used the RRSP Home Buyers program and withdrew your down payment out of your RRSPs. Now you need money for legal fees and moving expenses.
  • You received a gift from your family to put towards your down payment but want some money in order to feel more comfortable taking on this new liability.

What you should know about Cash-Back mortgages?

Simply put, a Cash-Back mortgage usually costs you more in the end and lenders never offer their best rates on a Cash-Back mortgage.  For example, a 3% Cash-Back on your $100,000 home purchase would give you a rebate of $2,943 and would cost you $4,252 over the life of the mortgage. Not exactly cheap, but well worth it if you won’t be able to afford basic necessities after you put a down payment on your new home.

This option is available for first time home buyers and for homeowners who wish to move up or to downsize and for revenue properties.  Having said that, The Cash Back option may not be for everyone and each situation is unique. What is important is getting the right advice before making any decisions.  To learn more ask your Hamilton real estate agent to connect you with a mortgage specialist.