Banks often show low mortgage rates available with them, but after you submit your mortgage application, you may realize that the rate you get is higher from that advertised by the bank. You may wonder why this happened. The fact is that the lower mortgage rates are reserved for those people whose mortgage can be insured in case the borrower defaults. Default insurance can be Insured, Uninsured, and Insurable. The mortgage rates available to borrowers under each of these categories varies. Insured Mortgages: The lender offers the lowest mortgage rates to the borrower in insured mortgages as the lender is insured against a default by the borrower. The borrower pays for this insurance and hence the lender does not have to bear extra costs, thus, these mortgages come at the lowest rate. It is, however, to be noted, that mortgage default insurance is compulsory in cases such as where the borrower can't pay up the 20% down payment requirement. They would then have to pay mortgage default insurance. Mortgage default insurance, however, is available to only those who are buying a property. Refinancing is not included in it. If you don't have the 20% down payment and do not qualify for the mortgage default insurance private lenders may be able to help you, but they would typically charge a high interest rate. Mortgage default applications have to compulsorily pass the e stress-test at the benchmark rate which is set by the Bank of Canada. You can get these if your home price is under $1,000,000. If you choose to switch lenders at some point in future, you can transfer your insurance policy too, so you get the lowest rates with the new lender too. For a mortgage to be insured, the borrower should come within the maximum debt to income ratio. Insurable mortgages: In case of insurable mortgages, the lender default insures the mortgage and not the borrower. It is the lender who pays the insurance sum and your mortgage loan comes insured from the back end. Here, too just like insured mortgages, the value of your home should be under $1,000,000 for you to qualify, and you should have 20% of the sum paid as down payment. The difference between insured and insurable mortgage is that the rates would be slightly higher than an insured mortgage as the lender incurs the cost. The mortgage stress test applies here too and only owner-occupied homes qualify for insurable mortgages. Uninsurable mortgages: As the name suggests uninsurable mortgages are those which cannot be insured against default. Mortgages which do not come within the norms of an insured mortgage or an insurable mortgage is an uninsurable mortgage. A refinanced mortgage is an uninsurable one. Mortgages in which the house value is $1,000,000 or more are uninsurable. Properties not occupied by owners or those amortized for more than 25 years are all uninsurable mortgages. If you are looking to insure your mortgage or have doubts about the kinds of mortgage you qualify for, do reach out to LendX Financial in Brampton, Greater Toronto Area.
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