jimf

Okay - I suppose the borrower will already have lost the first 10% comprising their deposit if that is the minimum a borrower has to put down so they aren't getting off scot free.

mattieuk

Yup, makes no difference to me. Property around the Lower Mainland is just a bit more unaffordable to me as it was before!

This isn't going to help many first time buyers at all (at especially around this area) - it should just give foreign money more of a free run at the property here, as more people bow out of the market.

Auld Yin

The borrower purchases insurance costing many thousands of dollars in most instances. Would you expect to pay for some occurrence you are insured against. The State (taxpayer) would, IMO, only be on the hook if there was a mass default situation such as that in the USA.

ann m

No - they are paying insurance along the way

Alan2005

And, more to the point; the banks gets the house. The house which they must have agreed was good enough security at the time of making the loan.

Auld Yin

And why not? The bank holds the property as collateral against a loan which it would not have been permitted by law to make without the buyer insuring the bank against any shortfall. At the time such a loan was made, default insurance was what made the house good enough security. Banks manage risk the best ways possible.
If the mortgage is in default and the bank forecloses, any excess over outstanding balance would be returned to the mortgagor, although the bank has no legal obligation to do so.

Alan2005

That was my point. The mortgagor isn't getting away scott free as they don't just lose their deposit; they lose the security for the loan as well. If that security (the house) doesn't cover the loan it's not the mortgagors problem - it's the banks and the insurers for accepting it in the first place.

Ho ho

Probably unlikely - if the house had equity then presumable the mortgagor could just sell it, pay off the loan and pocket the difference.

jimf

With this arrangement the mortgagor seems to hold nearly all the risks. The banks appear to take virtually zero risk. In which case why is the mortgage interest rate charged so high? Where a genuine risk is taken it is reasonable for an interest rate to be charged appropriate to that risk. However in Canada it seems that the banks charge the interest without actually taking any genuine risk.

Pretty Flowers

I worked in mortgages after my first degree. Houses that are repossessed lose value very quickly. Even when house prices are rising.

Alan2005

The banks have zero risk. The risk is borne entirely by tax payers. Some people argue that it's CMHC that takes on the risk - but they are wrong; logically CMHC actually has no risk. It can't go bankrupt - it can either pay the claims out of premiums or it can't. The reason banks can act like this is because they own the government (and also we let them get away with it).

Repossession doesn't stigmatize a house like that. They don't lose value because they are repossessed; it's more that they do not attain the maximum price possible because the vendor wants to sell quickly. Banks don't like to wait for the "greater fool" for months on end like home owners. If you absolutely had to sell your house in the next six weeks then you would find it's price reducing pretty sharpish too.

Auld Yin

Risk is not the only factor determining interest rates.

Alan2005

No, there is also competition