Over the last few years lenders have changed how they assess your mortgage rate. In the past, if you had a larger down payment and good credit you would get the lowest mortgage rate possible. Now there are many different scenarios which lenders use to segment your rate. Here is a breakdown of how it works.
High Ratio Purchases – When you purchase a home with less than 20% down this is called a high ratio mortgage. Normally these mortgages carry a higher risk because of the smaller down payment; however, lenders offer the lowest mortgage rate on these mortgages. The only downside is that you are required to pay an insurance fee on these mortgages and you can only amortize them over 25 years. In the end the insurance fee can outweigh the savings on the mortgage rate.
Insurable Mortgages – In situations where you want to transfer your mortgage from one lender to another most lenders will offer rates similar to those for high ratio purchases. Mortgages are considered insurable if they meet the high ratio purchase guidelines. The basic requirements are that the value is less than $1 million and the amortization is less than 25 years. For these mortgages you cannot increase the size of the mortgage from what you currently owe. These rates can also be obtained for purchases where you follow the above guidelines and you don’t have to pay the insurance fee.
Conventional Mortgages – When you purchase or refinance a home with 20% down or more this is called a conventional mortgage. You would think that with a larger down payment you would get a lower rate mortgage rate; however, this is not always the case. In most situations rates on conventional mortgages are higher than high ratio or insurable mortgages by ¼% – ½%.
Rental Properties – Mortgage rates for rental properties are now segmented as well where most lenders will charge a premium on the rate for rental properties. We have seen the premium vary from being .1% to .5% higher than standard owner occupied rates. Mortgages in a holding company can also carry a higher rate as well.
With the above scenarios lender may also vary your rate depending on what % of the value of the property you borrow. For instance if you borrow 65%, 70%, 75% or 80% these may also all carry different rates. In addition, lenders may charge higher rates for a 30 year amortization vs a 25 year amortization. The days of getting a simple mortgage rate are gone and now we as mortgage brokers have to fully delve into your situation to give you an accurate quote on mortgage rates.
If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.