Does It Still Pay to Shop Around for the Best Mortgage Rate?
As a reminder, on November 30, 2016, refinances, properties with purchase prices of more than $1 million, and single-unit rental properties all became ineligible for default-insurance coverage.
These changes have limited the number of competitive offerings that are available through monoline lenders. Monoline lenders, unlike banks and credit unions, specialize only in mortgages and don’t have cash-rich balance sheets.
These changes significantly reduced the types of mortgages that monoline lenders could offer. Their business models were built by securitizing mortgages through third parties, like the Canada Mortgage Bond (CMB) Program. This requires all of their loans to be default insured. At the same time, the changes left some of “the greenest grass” for banks and credit unions. Banks and credit unions don’t need to securitize their mortgages and can fund them with their balance sheets instead.
The next logical question for anyone in the market for a mortgage is, should I still shop around for the best mortgage rate or should I just go with my own bank?
Below is a summary of which type of lender is typically offering the best value to the three different segments of mortgage borrowers that were created by last fall’s mortgage rule changes.
High-ratio borrowers
Borrowers who are making down payments of less than 20% of their purchase price must pay for mortgage-default insurance. Once they do they have access to the lowest rates available.
The high-ratio segment of the market is as competitive as ever and monoline lenders typically offer these borrowers the most aggressively priced options. As an added bonus, monoline mortgage contracts also typically come with excellent terms and conditions, and they can have big impact on your total borrowing cost over the term of your loan. It is important to note that because you put less than 20% down, you will be qualified at the posted rate of 4.84%.
For example, high-ratio five-year fixed-rate mortgages can be found today at rates as low as 2.89% and five-year variable rates can be found at rates as low as 2.52%.
Low-ratio borrowers who are buying less than $1 million
Borrowers who are making down payments of more than 20% of their purchase price and who are buying for less than $1 million also enjoy a wide range of lenders competing for their business. These mortgages can still be default insured, although in these cases the lender typically pays the premium instead of the borrower.
Monoline lenders usually have the most competitively priced offerings for this segment of borrowers, and their low-ratio mortgages also come with excellent terms and conditions.
Today, low-ratio borrowers who are buying for less than $1 million can find five-year fixed-rate mortgages at rates as low as 3.09% and five–year variable rates as low as 2.45%.
Borrowers who are refinancing, buying for more than $1 million, or investing in a single-unit rental property.
These borrowers have fewer lenders competing for their business than before the rule changes. These mortgages can no longer be default insured. But they still have access to a wide range of options and there are still significant differences in the terms and conditions offered by the most competitively priced lenders.
Today, borrowers who fall into this third category can expect five-year fixed mortgage rates in the 3.09% to 3.14% range and five-year variable mortgage rates in the 2.60% to 2.80% range.
It is also worth pointing out that not all bank mortgages are the same. When shopping for the best Mortgage Rates in any mortgage category, one can’t really evaluate a deal from one’s own bank until it is compared to offerings from the other banks as well as the non-bank alternatives.
The Bottom Line
Despite the changes in the industry, borrowers should continue to shop around because there is still a wide range of solutions available. One of our experienced Mortgage Advisors can help you understand today’s market, and can help get you into the Mortgage product that best fits your needs. Contact Client First Mortgage Solutions today.
Original Article – Dominion Lending Centres – August 25, 2017
