New Classifications for Mortgages & who gets the best rates

Some thoughts on the new rules and things to know.

Rules in 2017 that change mortgage rates & deals

While the rule still holds that if you put less than 20% down you do not need mortgage insurance (e.g. CMHC or Genworth etc. - though life and disability should be seriously considered) it does mean your mortgage will be at a higher rate than those paying the insurance.
The terms now are insured, insurable and uninsurable.

THEN

A High Ratio mortgage is the same as it has been for a long time, a down payment of less than 20%.  The borrower still has to pay the extra insurance costs, and the rates went up recently so it is a bit more than before.

Conventional Mortgage is still a mortgage where you put down 20% or more of the purchase price or renew at less than 80% of the value.  All refinancing at the best rates must be conventional.
Here is where the new terms come to play.

NOW 

Insured - This is like the old high ratio.  Client is paying the mortgage insurance equity in the home is 19.99% or less.

Insurable - This is a new term lenders use to define a mortgage that is in their portfolio and can be insured at the lender's expense for a property valued at less than $1 million.  It also has to fit the insurers rules where it qualifies at the Bank of Canada benchmark rate (a higher rate to make it far more conservative and thus lowering what some people can borrow) with a 25 year maximum amortization (some other loans can go to 30 years), and with a down payment of at least 20%.

Uninsurable -  This is the "new category," it is a mortgage that is not eligible for mortgage insurance.  Examples include, refinancing, single unit rentals (rentals of between 2 - 4 units are insurable), properties greater than $1 million.

The BEST interest rates are for the insured category, the other 2 can pay between 0.20% and 0.40% more.  The new government rules at the end of last year, meant increased costs to lenders are being passed on to the borrower.

Why have the insurance?  Lenders like it because it helps protect them against foreclosure, fraud, and possible loss of value on the property (which may seem hard to believe today, but thinking long term, it is possible.

The higher rate then is effectively a form of self-funded insurance since they cannot get it from CHMC or Genworth etc.

Consider then the costs of the higher interest rates vs. putting less than 20% down on some lower costs homes.  You should also factor in how fast the property prices are increasing, if they are, and whether you can save fast enough, and/or your incomes are increasing enough to buy that same place when you have more money.  It is a tricky balance, and each regional market may have a different answer, so call Andrea if you have any questions about what is right for you.