Quote:
Originally Posted by Manic!
If you have a job and can pay your mortgage what would be the point of selling. If your from China what would you do with that money after selling the house?
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This is actually not entirely true in Canada as we usually have 5yr terms on mortgage (as in US you can have 30yr at once, hence no renewal) and every time it comes to renewal, a calculation would be done.
In the example shown, or when one's downpayment gets wiped, lenders would ask one to come up with the difference to ensure their loan to value is still balanced and/or meeting CMHC requirement.
Let's say you buy 2M house, put down 400k, you have a LTV of 80%, which is a healthy number for residential mortgage. Now the house drops by 20% (1.6M asset value). Even if you have no problem on continuing the payment, at your renewal, your LTV becomes different. You now owes 1.36M after 5yrs of payment (calculated at 2.69% interest with 25yr, assuming that stays fixed) on an asset worth 1.6M, so the LTV becomes 85% (or 15% down) and it would trigger CMHC.
2 Options:
1 - pay CMHC insurance and live with the now 15% down and higher monthly payment
2 - pony up ~80k so that the LTV stays the same 80% as before.
Current generation CDN buyer have not experienced something like this as RE have been growing like mad for the last decade and more. But this is exactly what a bank would do (barring any gov't new policy/intervention) in a down market.