Understanding the new mortgage terminology

2016-12-22 | 11:36:16

On November 30, 2016, the new mortgage rules which were announced back in October were officially implemented. These changes will require us to become accustomed to some new terminology. Here is a quick summary:

INSURED MORTGAGE: What was previously referred to as a "high ratio" mortgage. On a purchase, the down payment is between 5 .00% - 19.99%. Requires the borrower to pay a default insurance premium. The coverage is provided by CMHC, Genworth or Canada Guarantee. The insurance is meant to protect the lender in the event the borrower defaults, and is paid for by the borrower. Maximum amortization on the loan is 25 years and is qualified at the Mortgage Qualifying Rate (MQR), which is currently 4.64%.

INSURABLE MORTGAGE: A conventional* mortgage which is qualified using the same guidelines as an insured mortgage but is not necessarily insured by the lender. If the lender chooses to insure the mortgage, the premium is paid for by the lender. Insured/insurable mortgages are usually offered at better rates. Guidelines for insurable mortgages include the following:

-purchases, ports, transfers/switches, owner occupied rentals with 2-4 units

-qualified based on the greater of the MQR or the contract rate

-maximum amortization of 25 years

-maximum property value of $999,999.99

*conventional = where the equity/down payment is 20% or greater

UNINSURED MORTGAGE: A conventional mortgage that does not meet the above criteria and therefore cannot be insured. Because of the increased risk to the lender, uninsured mortgages might come with a premium on rate. Guidelines include the following:

-all refinances/equity take-outs

-single unit rentals

-any amortizations greater than 25 years (maximum 30 years)

-mortgages on properties that are $1 million or greater

-conventional 5 year fixed rate mortgages which require the contract rate in order to qualify (MQR stress test does not apply)

Additional credit score requirements may apply. Now, more than ever, you need to know what your available mortgage options are. If you are seeking a mortgage in the next little while and are not sure which category you fall into please reach out to me.