A Flex Down mortgage, also known as a Borrowed Down Payment mortgage, is a type of mortgage program that allows homebuyers to use borrowed funds as their down payment. This is particularly useful for individuals with good credit and stable income but haven’t saved enough for a traditional down payment. Here’s how it works:

How a Flex Down Mortgage Works:

1. Borrowed Down Payment: Instead of using saved funds, homebuyers can borrow their down payment from various sources, such as a personal loan, line of credit, or even a credit card. The key is that the borrowed funds must be from a source that allows repayment over time.
2. Eligibility Requirements:
• Good Credit Score: Typically, a minimum credit score of 650 or higher is required.
• Stable Income: Proof of stable income and employment is necessary to demonstrate the ability to manage mortgage payments along with the repayment of the borrowed down payment.
• Debt Service Ratios: Lenders will assess your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to ensure you can afford the mortgage and the repayment of the borrowed funds.
3. Down Payment Amount: Like standard mortgages, the minimum down payment for a Flex Down mortgage in Canada is 5% for homes up to $500,000. For homes priced between $500,000 and $1,000,000, the down payment is 5% on the first $500,000 and 10% on the portion above $500,000.
4. Insurance Premiums: Since the down payment is less than 20%, mortgage default insurance is required through providers like CMHC, Sagen, or Canada Guaranty. The insurance premiums can be slightly higher due to the added risk of using borrowed funds for the down payment.

Benefits:

• Homeownership Sooner: Helps buyers get into the market faster without waiting to save a large down payment.
• Flexibility: Allows more flexibility in financing options for the down payment.

Risks and Considerations:

• Higher Debt Load: Increases overall debt, including the mortgage and the repayment of the down payment loan.
• Interest Costs: Additional interest costs from the borrowed down payment can add to monthly expenses.
• Financial Discipline: Requires strict financial discipline to manage both mortgage payments and the repayment of the down payment loan.

A Flex Down mortgage can be a helpful tool for buyers who are ready for homeownership but lack the down payment funds. However, it’s important to carefully evaluate your financial situation and ensure that you can handle the increased debt load responsibly.