Higher Mortgage Rates With A Bigger Down Payment???
So you're ready to purchase a property and you're in a good enough financial position to come up with a 20% down payment (or greater) so you should expect the best interest rates available, right? Though this concept makes sense, it's simply not how the current mortgage market works. Why? Let me explain...
In the beginning of 2017, the Office of the Superintendent of Financial Institutions (OSFI) instated new, greater capital requirements for mortgage default insurers to create a larger buffer for future mortgage defaults in an effort to provide more financial stability for Canada's mortgage market. By March 1st, 2017 insurance premiums were increased anywhere from 11% to 126% depending on the loan-to-value/size down payment. Everyone knows that buying a home with less than 20% down requires an insured mortgage and the borrower pays the premium. What most people don't know is that a lot of mortgage lenders (primarily non-bank lenders) still insure mortgages where there's 20% or greater down payment/equity and they're the ones to foot the bill (to CMHC, CG or Genworth).
Non-bank mortgage lenders have always processed mortgages this way (see NHA MBS and CMB programs) and for mortgages in the loan to value range of 65.1% - 80%, the premiums which they have to pay have increased 92% to 126%. Dramatic increases on a cost to do business like this means they've had to increase their interest rates just to be able to continue providing mortgage options to consumers in this loan to value range. This is the primary reason why you have seen interest rates increase from the 2.75% range to the 3.50% range for borrowers with 20% down.
At the end of the day, if you have enough money to comfortably afford a 20% down payment, you will still save more money paying slightly higher rates vs. those who have less than 20% down and get the advantage of the lowest possible rates.
Ian Leverington,
Mortgage Associate
Verico Crown Mortgage Services Inc.
ianleverington.ca
In the beginning of 2017, the Office of the Superintendent of Financial Institutions (OSFI) instated new, greater capital requirements for mortgage default insurers to create a larger buffer for future mortgage defaults in an effort to provide more financial stability for Canada's mortgage market. By March 1st, 2017 insurance premiums were increased anywhere from 11% to 126% depending on the loan-to-value/size down payment. Everyone knows that buying a home with less than 20% down requires an insured mortgage and the borrower pays the premium. What most people don't know is that a lot of mortgage lenders (primarily non-bank lenders) still insure mortgages where there's 20% or greater down payment/equity and they're the ones to foot the bill (to CMHC, CG or Genworth).
Non-bank mortgage lenders have always processed mortgages this way (see NHA MBS and CMB programs) and for mortgages in the loan to value range of 65.1% - 80%, the premiums which they have to pay have increased 92% to 126%. Dramatic increases on a cost to do business like this means they've had to increase their interest rates just to be able to continue providing mortgage options to consumers in this loan to value range. This is the primary reason why you have seen interest rates increase from the 2.75% range to the 3.50% range for borrowers with 20% down.
At the end of the day, if you have enough money to comfortably afford a 20% down payment, you will still save more money paying slightly higher rates vs. those who have less than 20% down and get the advantage of the lowest possible rates.
Ian Leverington,
Mortgage Associate
Verico Crown Mortgage Services Inc.
ianleverington.ca
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