With the mortgage rule changes in recent years lenders have had to make some adjustments to their rate offerings.
There are different tiers and rate pricing based on the following 3 categories:
1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.
Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money so clients seeking or in need of an insured mortgage will get the best rate offering on the market.
Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates Insurable mortgages are typically a close second.
If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.
While there are rumors that the Government may start to allow refinances and 30-year amortizations to be insured again no formal announcements are expected in the next few months.
In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering it’s wise to have a free analysis of your mortgage done so you can make an informed decision – and I can help!