The new mortgage rules have created three categories of mortgages: insured, insurable and uninsurable. Currently five year fixed mortgage rates typically range from 3.69% for an insured mortgage to 3.99% for an uninsurable mortgage. Based on current interest rates and a typical mortgage amount $300,000 that would be a savings of more than $20,000 over the life of your mortgage.
Before the new rules came in to place mortgages fell into two categories, high ratio or conventional. High ratios were when borrowers had less that a 20% down payment or 20% equity if they were looking to renew or refinance. And all mortgages could be insured by the government. This insurance protected the lenders in case the borrower defaulted on their mortgage. For high ratio mortgages the borrower covered the cost while lenders covered the cost for conventional mortgages. At that time interest rates on high ratio and conventional mortgages were the same so most people tried to get to the 20% down payment on order to avoid paying the mortgage default insurance.
Even though you may have originally taken out a conventional mortgage you may still be able to fit in the insurable category and it is this category that can provide the biggest savings as you may get the lowest interest without having to pay for the mortgage default insurance.
Here are the basic guidelines for each of the categories which might give you an idea of where you fit in. But it never hurts to review your specific situation with a mortgage broker. Most mortgage brokers are happy to provide a complimentary mortgage review to lay out the best options for you.
- For the purchase of a property that will be owner occupied. This includes second or vacation home.
- Purchase price of less than $1 million
- Down payment of less than 20%
- Maximum amortization of 25 year
- The borrower pays the cost of the mortgage default insurance
- Insured mortgages have the lowest interest rates
- For the purchase or transfer of an existing mortgage. No changes can be made to the existing mortgage.
- The property must be owner occupied
- Purchase price less than $1 million
- Down payment or equity of 20% or more
- Maximum amortization of 25 years
- The lender pays the cost of the mortgage default insurance
Insurable interest rates have a sliding scale based on the loan to value from as low as the rates offered for insured mortgages to as high as the rates for uninsured mortgages. The loan to value is the ratio of the mortgage amount compared to the purchase price or estimated value of the property. The lower the loan to value the lower the interest rate as the lender cost for the mortgage default insurance drops as the loan to value drops.
In the case of the transfer of a mortgage from one lender to another the value used to determine if a property meets the guidelines is based on the value of the property before the new rules came into place in November of 2016. However the loan to value is calculated based on the current value of the property. This is important for borrowers in the Vancouver and Toronto markets as they may still get a mortgage at best rates due to the increase in market values.
- For purchases, transfers and any refinance of an existing mortgage. A refinance is when you make any changes to increase the amount of the mortgage or the amortization
- Property can be owner occupied or a rental
- Purchase price or property value is $1 million or more
- Down payment of 20% or more
- Amortization can exceed 25 years
- Interest rates are highest for uninsurable mortgages
If you have any mortgage questions contact an MA broker today.