I’d like to briefly discuss the 3 categories of mortgages being offered by Prime-Lenders, which one offers the cheapest rates, and why.
High Ratio Mortgages
Down-Payment between 5%-20%; needs to have Canadian Mortgage Housing Corporation (CMHC) insurance. This means the insurance agency that dictates what the lending requirements are. So yes, you may be getting a mortgage through ScotiaBank or TD, but at the end of the day it is CMHC that sets the guidelines on what the lending requirements are. High Ratio Mortgages offer the best mortgage rates because the mortgage is insured. This insurance removes the bank’s risk of a client defaulting on their payments.
The CMHC requirements are standardized between all lenders, allowing very little flexibility between lenders.
These mortgages have a minimum of 20% down-payment, are uninsured, but still follow CMHC’s lending guidelines. These guidelines include, and are not limited to, the same debt servicing ratios per-credit score, and must qualify with a maximum amortization of 25 years. Insurable rates are similar to High-Ratio mortgages; however, we begin noticing much more variance between these rates with each lender.
Mortgages that have a minimum of 20% down payment, and do not follow CMHC’s lending guidelines. Within this “Conventional Mortgage” category we start seeing banks being much more creative with their financing requirements. Rates for conventional mortgages are the highest between these groups and vary the most. A few key features of conventional mortgages worth mentioning are outlined below:
– 30 Year amortization: Most banks offering conventional mortgages will allow the client to qualify using a 30 year amortization to lower their monthly payments.
– No stress test: Some credit unions offer mortgages that are not required to follow the governments stress-test rules.
– Equity Financing: Several Prime Lending Banks/Credit Unions offer mortgage programs to clients that have a minimum of 35% down-payment. These programs do not follow the typical income requirements, relying heavily on a common-sense approach.
I hope this clarifies some confusion around the different mortgages, and the varying rates being offered.
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