Insured Vs Uninsured Mortgage Rates. Whats the Difference?
The internet is a fantastic shopping tool. Allowing us to source the most competitive and affordable products needed. Yet, searching for a mortgage rate has never been so complicated with all the changes since 2017. Insured vs uninsured mortgage rates really make things confusing. We are here to help!
Insured Mortgage Rates
Insured mortgage rates (ending in a past tense “ed”) means that the borrower is obligated to pay CMHC mortgage insurance. This typically occurs when cash down to purchase a property is less than 20% down.
Interestingly, lenders love Insured Mortgages! The main reason being the borrower is paying the insurance to the government to insure the loan. This takes the risk off the lender completely, allowing them to sell the mortgage as a Mortgage Back Security, or on the bond market. Thus taking it “off the books”.
With less risk, and allowing the bank to free up “liquidity”. Lenders will typically offer the lowest rates on insured mortgages given their funnel through sell off benefits.
Insurable Mortgage Rates
Insurable mortgage rates (ending in future potential “able”) means that the borrow is not obligated to pay CMHC mortgage insurance, having more than 20% cash down. But the lender has the opportunity to “back-end insure” the mortgage with CMHC Canada.
This means the lender can still gain all of the benefits of an insured mortgage, with one caveat: The lender is required to pay the insurance premium.
Most lenders are willing to cover the cost of insuring the mortgage in the “back-end” so they can keep the mortgage off their balance sheet to allow re lending of more funds. However, because they have to cover the cost to achieve this, you will not usually see interest rates as competitive as insured mortgages so they can recoup the cost.
Uninsured Mortgage Rates
Non insurable mortgages mean exactly what the term implies: They do not qualify for being insured or insurable.
This can happen for several reasons:
- The property value is over the insurable limit of 1 million.
- The property is a rental
- The property, or the borrower do not fit insurability requirements (to low of FICO score, property is a co-op…. etc.)
If a mortgage does not fit insurability guidelines. The lender must then keep it on the balance sheet. This then leads more difficulty “reselling” the mortgage if they ever wanted to, along with higher risk on the lender in the event the borrower defaults (misses payments). Thus, Non-Insurable rates tend to be the highest in the market.
Thankfully, Pragmatic Lending has made it extremely simple for you to figure out which rate you will get! Head over to our Canadian mortgage rates page and use our Rate Finder tool to source the best rate possible along with being the best product! Remember, the lowest interest rate you find online does not necessarily mean the best rate. We can’t wait to guide you through the process of saving you thousands! Schedule a digital visit with us today.
