As mortgage Brokers we get to discuss mortgage rates daily and to be honest trying to explain why one rate is different to another based on the type of mortgage, amortization etc. can become repetitive over time however I do realise that there is a lot of unclear information out there especially on the internet regarding mortgage rates so I thought I would try to explain why there are different residential mortgage rate quotes in the market and why you may find yourself in one rate box and not the other. (Please note I am referring to A lending products i.e. best terms and rates. B or Alt A lending fall under another category)

Most online rate quotes will quote the lowest possible rate in the market to draw you in without an explanation on the mortgage product it is attached too. As a result, this can leave a borrower confused and frustrated when applying for a mortgage but then been told sorry you do not qualify for that rate.
Mortgage rates are related to the type of mortgage product you are obtaining and although credit and income are very important factors for qualifying it is the mortgage product type that will dictate the rate once approved.

Insured Mortgages are those mortgages that are backed by one of the three mortgage insurance companies in Canada. The most well know is CMHC however there is also Genworth and Canada Guaranty. A mortgage can be insured in two ways. One is a High Ratio mortgage. This is when a borrower purchases a property with less then 20% and therefore pays the insurance premium which is added to the mortgage. For this type of mortgage, the purchase price must be under $1,000,000.00 to be insured and the amortization can be no longer then 25 years.

Insured mortgage with no premium. If you are purchasing a mortgage with 20% or more down, you can get an insured mortgage (this just means your mortgage is insured in the back end by the insurer), but you pay no insurance premium. Again, the purchase price must be under $1,000,000.00 and a maximum of 25 years amortization.

Both these options above will get you the lowest rates on the market and typically these are the rates you see quoted on-line. A third option is If your mortgage is up for renewal and you do not take out any extra money (refinance) you can also qualify for insured mortgage pricing with no insurance premium. You must meet the same criteria as above, property value under $1,000,000.00 with a maximum of 25 years remaining on your amortization.
Current insured 5-year insured mortgage rates are between 2.69% and 2.79% on a fixed and 2.85% to 2.95% on a variable.
There is also No Frill insured mortgages available where one can get another 10bps to 20bps off the mortgage rate, but you give up something in return. There are clauses such as a bonafide sale clause: this means you cannot break the mortgage throughout the term unless you sale the property or higher penalties clause means you pay a lot more in penalties to break the mortgage. Be aware of these No Frill mortgages. They look tempting but you can get burned if you run into a situation where you need to get out of the mortgage before the term is up. You need to decide on whether the extra savings is worth the risk or not.

Non-Insured mortgages (sometime called conventional mortgages) are mortgages that have a purchase price over $1,000,000.00, or a refinance (adding more money to the mortgage or taken out a secured line of credit) or an amortization of 30 years. So, for example, if you are purchasing a home that is over $1,000,000.00 you cannot get an insured mortgage and you must have at least 20% down. If you are refinancing to consolidate debt, take out equity for a down payment on another purchase, add on a secured line of credit or something else this mortgage cannot be insured. Benefits of non-insured mortgages are that you can extend the amortization to 30 years to keep your payment lower, qualify for more borrowing, you can take out equity or consolidate debt. Mortgage rates for 5-year non-insured mortgages are in the 3.04% to 3.09% for fixed and 3.30% to 3.40% for variable.

So, as you can see there is a spread between insured and non insure mortgages rates. If you are purchasing for over a $1,000,000.00, refinancing or need a 30-year amortization then you cannot get the insured pricing, so the rate quote you see online of 2.79% etc. are meaningless to your requirements.

Rental properties whether a purchase or refinance come with a rate premium of another 20bps to 25bps above the conventional non-insured mortgage rate pricing.

It is not just about the rate: When deciding on your mortgage focus on the mortgage that best fits your needs. Maybe you can qualify for an insured pricing at 20% down but the payment over 25 years is too high. In this case you take a 30 Year amortization with a higher rate, but your monthly cash flow is much better because of the lower payment which suits your lifestyle and that is the most important thing to you right now. You can always increase your mortgage payment later to pay down your mortgage more aggressively.

Have a great weekend

Robert Clancy
Residential and Commercial Mortgage Agent
————————————————-
SAFEBRIDGE Financial Group
Broker License #10524
Direct Line | 416-899-1467
Fax | 1866 385-4049
Facebook: https://www.facebook.com/bestratesmortgages/
E-mail | robert@safebridgefinancial.com
Website|www.bestratesmortgages.ca

The Government approved a reduction in the mortgage stress test qualifying rate for High Ratio mortgages beginning April 6th. This is for High Ratio Mortgages where the borrower is putting down less then 20% and needs mortgage insurance. We do expect the conventional mortgage (non-insured mortgages with 20% or more down payment) stress test which is currently at 5.19% also to follow suit but nothing is official yet.

What this means to the borrower: Currently when qualifying for a mortgage the qualifying rate used is The Bank’s Posted Rate of 5.19%. The Government Department of Finance will use their own weekly Median rate + 2.00%, so today would be around 4.89%, to be implemented on April 6th. The rate will be set each week. So today 4.89% qualifying rate vs the current qualifying rate of 5.19% would add roughly another $15,000.00 to a mortgage so nothing to get overly excited about but could help on a tight approval.

Let me know if you have any questions

Have a great day

Robert Clancy
Residential and Commercial Mortgage Agent
————————————————-
SAFEBRIDGE Financial Group
Broker License #10524
Direct Line | 416-899-1467
Fax | 1866 385-4049
Facebook: https://www.facebook.com/bestratesmortgages/
E-mail | robert@safebridgefinancial.com
Website|www.bestratesmortgages.ca

Under the New Lending landscape Self Employed or Commission borrowers have taken the brunt of the tighter mortgage rules. Ten years ago a self employed or commission borrower could sign a form declaring how much they made and as long as it made sense for their industry, the borrower had access to A lenders offering the lowest rates and terms just like a salary or hourly employee.
Today things are a lot different, however there are still plenty of options for self employed and commission earners.
A Lenders are lenders offering the best rates and terms with the lowest down payment of 5%. For Self Employed or Commission borrowers whose average two-year Net Income supports the mortgage amount needed to qualify you still get access to the best rates and terms through A lenders with as little as 5% down.
If your Net Income does not meet the income requirement for the mortgage but your Gross income does, then there is a still an option to qualify through an A lender. The key here would be the Gap between your Gross and Net income. For example if your Gross income before deductions is $100,000.00 and your Net is $20,000.00 and you need $90,000.00 to qualify for your mortgage then the chances are slim, If however your Gross is $100,000.00 and your Net is $65,000.00 and you need $90,000.00 to qualify for your mortgage it may be possible. It is case by case in these scenarios however if the lender accepts the income you qualify for the best rates and terms under the A lenders. Under this program though the minimum down payment is 10% for High Ratio Financing compared to 5% for regular income employees and for Conventional financing (you pay no insurance premium) is 35% compared to 20% for regular employees.
B Lenders are lenders who accept alternate documents to support the income. So, if an A lender is not possible the B lender is the best option. The increase in B lending over the past three years has been phenomenal as more and more self employed, and commission borrowers look to this area for their mortgage financing.
A B lender will look at your bank deposits to confirm your income rather then your tax returns. So, for example say you make $100,000.00 but only show $20,000.00 net income on your tax return but need $90,000.00 to qualify for the mortgage as along as your bank deposits add up to $90,000.00 then you are fine. The lender will need a minimum of six months bank deposits and do a twelve average. They may reduce some of the business income deposits based on expenses for your industry type.
Pros and cons of B lending.
Pros: 1. you can qualify based on bank deposit income, 2. Your rate is roughly only 1.00% higher then A lender (there is usually a 1% to 2 % fee), 3. Typically your term is just for one year so at renewal we have the option to try switch back to an A lender.
Cons: 1. You do need a minimum of 20% down. Your rate is higher but not by much and you pay a fee of 1% to 2%.
Conclusion. Everyone wants to fit into the A lending box for the best rates and terms however this is not always possible. I look a it this way. Right now a self employed or commission borrowers who show little net income on their tax returns have an option of increasing there Net Income to obtain A financing and pay more taxes OR they can go with a B lender and pay roughly 1% more in interest with a small fee. If you do the Math it is allot cheaper to pay an extra 1% in interest, then to declare more income and pay more taxes.

After the sell off in the stock market over the past few weeks, although they have bounced back again, and the movement of investors into bonds we did see a reduction of .05bps in the fixed rates. Not the whopping reduction the media would make you believe. We may see further discounting over the next few weeks especially with the Spring market around the corner.