Understanding Mortgage Types
Clear • Secure • Tailored Mortgage Solutions
Lender rate offerings are tiered and priced based on the following three classifications:
INSURED
(High-ratio – Less than 20% down payment)
If you put less than 20% down, mortgage default insurance is required. 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 (up to 30 years for first-time homebuyers and buyers of newly constructed homes)
• Purchase price under $1.5 million
• 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)
Gross Debt Service (GDS): The percentage of your income used for housing costs, including mortgage payments, property taxes, heating, and 50% of condo fees (if applicable).
Total Debt Service (TDS): The percentage of your income used for all housing costs plus other debt payments, such as car loans, credit cards, and lines of credit.
INSURABLE
(Down payment of 20% or more 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.
* In some circumstances when dealing with insured applications, the down payment required may be greater than 20%. These would pertain to specific niche programs only.
UNINSURABLE
(Conventional – down payment of 20% or more)
If your down payment 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 $1.5 million (subject to sliding scale, lender specific)
• Purchase/Refinance/Switch
• Possibility of exceptions on qualifying ratios
• Owner-occupied/Cottages/Second Homes/Rentals
Insured mortgages are the safest type of mortgage loan for lenders and the most cost-effective way of lending mortgage money. Clients seeking or in need of an insured mortgage will typically get the best interest rate offering on the market.
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.
If a mortgage is Uninsurable there is a greater risk to the lender/investor. This increased risk results in a slightly higher interest rate to account for the increased risk.
