Understanding Mortgage Types
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 classifications:
INSURED (High-ratio – Less than 20% downpayment)
If you put less than 20% downpayment, you will need mortgage loan insurance. This insurance protects your lender in the event the borrower can’t make their mortgage payments and, in most cases, gives the applicant access to the lowest rates.
The current mortgage loan insurance companies are CMHC, Sagen and Canada Guarantee.
- Maximum 25-year amortization
- Purchase price under $1M
- Applies to Purchases & Eligible Switches
- Must not exceed GDS/TDS 39/44
- CMHC only GDS/TDS 35/42 if your beacon is under 680
- Must be Owner-occupied (but can have a rental unit)
INSURABLE (Greater than 20% downpayment while meeting the following criteria)
This mortgage type may not need mortgage insurance but would qualify under the mortgage insurers rules. The borrower doesn’t have to pay an insurance premium but the lender has the option to if they choose.
This mortgage meets all the qualifications of an insured mortgage (stated above), however, the LTV (Loan to Value) is equal to or less than 80.00%. Note: Larger banking institutions typically do not offer Insurable rates or products but borrowers may have access to a slightly lower rate if the amortization is 25yrs or less.
UNINSURABLE (Conventional – downpayment of 20% or more)
If your downpayment is 20% or greater, then mortgage default insurance is not required, and you, the borrower have access to more flexible terms. In some circumstances where location or condition of the property is a concern, the lender may request mortgage loan insurance as a condition of financing regardless of the LTV. In these cases, you would have to follow the insurers rules. Uninsurable files follow the rules below and are subject to a potentially higher interest rate.
• Maximum 30-year amortization
• Purchase price over $1M (subject to sliding scale, lender specific)
• Possibility of exceptions on qualifying ratios
• Owner-occupied/Cottages/Second Homes/Rentals
Insured as well as Insurable mortgages may 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.
The mortgage contract has your signature on it and it is important to understand any contract you are signing. Get in touch and I would be happy to discuss your situation and answer any questions surrounding mortgage conditions or jargon to ensure the best results for YOU!
Sign up to receive monthly Home, Lifestyle & Mortgage News here.