Insured vs. Insurable vs. Un-Insurable.. What does it all Mean?
We used to have two primary mortgage categories, “High Ratio” or “Conventional” mortgages, but now we have insured, insurable and un-insurable. What do these terms mean?
Insured; a mortgage transaction in which the insurance premium is/has been paid by the client. (Generally, 19.99% equity or less to apply towards a mortgage, amortization of 25yrs or less, mortgage under $1Million, qualify at Bank of Canada(BoC) benchmark rate).
Insurable; a mortgage transaction that is portfolio-insured at the lender’s expense for a property less than $1Million and that fits the insurer rules (qualified at the BoC benchmark rate, amortization of 25 years or less with a down payment of at least 20%).
Uninsurable; a mortgage transaction that is ineligible for insurance. These transactions include re-finance, some purchases, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1Million, equity take-out greater than $200,000, amortization greater than 25 years, and qualify at Contract rate not BoC Benchmark.
The biggest difference felt by the consumer with these different categories, is in the interest rate. Those able to obtain an Insured mortgage product are seeing a lower interest rate than the Insurable and Un-Insurable products [difference currently being from 20 to 40 basis points (0.20-0.40%)]. Is this interest rate difference a big deal? Let’s look at a scenario based on today’s lending and real estate landscape.
Scenario;
- First-time home buyer
- Same Client buying this year, or waiting 1 year to save 20% down payment.
- Factoring in that Real Estate has had an 18.9% price increase this year over last
5% Down Payment
Purchase Price $500,000
5% Down Payment $25,000
Mtg Insurance Premium $19,000
Starting Mtg Balance $475,000
Interest Rate 2.59%
Amortization 25yr
Monthly Mortgage Payment $2,236
20% Down Payment
(1 year later)
Purchase Price $594,500
20% Down Payment $118,900
Mtg Insurance Premium $0
Starting Mtg Balance $475,600
Interest Rate 2.89%
Mortgage Payment $2,224
As you can see, there isn’t a big difference in the starting mortgage balance between (with 20% down you only save $600 by avoiding the insurance premium). Also, the monthly payment is only $12.00 higher when only putting 5% down and buying a year sooner. This doesn’t even take into account the full year of equity accumulated in the home if purchased this year rather than waiting!
The time to buy is NOW.
Contact me today to get your application started!
Meghan Van Houten – Mortgage Agent
416-709-9062
[email protected]
Mountainview Mortgages
5038 Fairview Street, Burlington, ON L7L 0B4
Independently owned and operated
Lic# 12568
