Have you ever wondered why banks promote super low mortgage rates, but when you submit an application to that same bank, the interest rate they approve you at, is significantly higher than what they advertise?
What the banks don’t tell you, is that their lowest mortgage rates are reserved to mortgages that are, or can be, insured against default.
There are 3 categories to mortgages when it comes to default insurance:
- Insured: An insured mortgage is a mortgage that tends to offer the lowest mortgage rates, since this default insurance will cover the lender in the event that the borrower defaults on their mortgage and there is a shortfall once the property is sold.
- Insurable: An insurable mortgage is a mortgage that is default insured by the lender rather than by the borrower. This means that the lender pays the insurance premium and ‘back-end insures’ your mortgage loan.
- Uninsurable/Conventional: An uninsurable/conventional mortgage is a mortgage loan that cannot be insured against default.
Current Best 5-year Fixed rates with an 80% Loan to Value (LTV)
- Insured: 4.84%
- Insurable: 5.04%
- Conventional: 5.49%
More Information on Insurable mortgages:
- Insurable mortgage still require you to qualify and are only available on home purchases that are $1 million or less, and where the borrower has at least 20% as a Down Payment. Since the mortgage is insured, the lender will usually offer special low rates to the borrower, but since the lender incurs the cost of this insurance, those rates are not usually as low as they would be with an ‘insured mortgage’ .
- They are only available as an option on mortgages that are 80% or less of the purchase price of the home
- Only available on new purchases and straight lender switches, not on refinances
- The lender pay the premium, not the borrower, so there is no HST to be paid on closing, and no monthly premium payments to be made
- Borrower’s credit and income to debt ratios must qualify
- Mortgage stress-test applies
- Only available on owner-occupied home purchases
- In the event of a switch and renewal time, the property must have been purchased for less than $1 million and no increase in mortgage amount or amortization period has transpired, since the original purchase date.
More information on Conventional Mortgages
- Purchases of $1 million or more, or even purchases of less than $1million that do not qualify based on the requirements of an insurable or insured mortgage.
- Mortgage refinances where you either increase the mortgage amount or increase the amortization period.
- Non-owner occupied properties
- Amortization period for longer than 25 years
Mortgage default insurance only protects the lender in the event that you default on your mortgage loan. It guarantees that their investment in the loan will get repaid to them even if you stop paying your mortgage.
