At one time to buy a property you needed ALL CASH. This of course was onerous so to assist these transactions, the vendors of the properties would hold a note (mortgage) requiring stated re-payments. This evolved into others lending money and taking a lien (mortgage) against the property with stated re-payments. Banks and other institutions saw this as a stable place to invest their client’s deposits and realize a return on the monies.
As Institutions became more involved in mortgage financing, restrictions were placed on them so as not to jeopardize the depositor’s monies (see www.CDIC.ca). Limitations such as types of properties, quality of borrowers and loan-to-value ratio guidelines were established. The loan-to-value (LTV) of 75% of the value of the property was one of the most obvious limitations. But not everyone had 25% cash available for a purchase; so high ratio financing was introduced. Please note that under recent changes to the Bank Act only 20% cash down payment is required and the Lenders can now lend to 80% without high ratio Mortgage Insurance.
There are three current high ratio mortgage insurers active in Canada, Canada Mortgage and Housing Corp., Genworth Capital and AIG United Guaranty.
These companies provide loan loss insurance to the LENDER that if a default occurs on a mortgage and losses are sustained, they will re-imburse the LENDER for the lost monies.
This is actually an insurance policy consisting of, the borrower(s) a specific property and a specific mortgage. The borrower buys this policy in one full payment at the time of the closing of the transaction. The cost is normally added to the mortgage and re-paid over the life of the mortgage.
Mortgage Insurance protects the lender in the event of default. Mortgage Insurance provides no protection for the borrower!
The following chart indicates the costs of high ratio financing.
|
Loan Size (% of Lending Value) |
Single Advance Premium (% of Loan) |
| Up to and Including 65% | 0.50% |
| Up to and Including 75% | 0.65% |
| Up to and Including 80% | 1.00% |
| Up to and Including 85% | 1.75% |
| Up to and Including 90% | 2.00% |
|
Up to and Including 95% Traditional Down Payment Flex Down |
2.75% 2.90% |
| Up to and Including 100% | 3.10% |
As can be seen it can be expensive to borrow high ratio funds, but the alternative is to continue to rent and try to save up the 20% required cash.
Rates For
Fri, Jul 30, 2010
6:05 am
| 1 Year (Closed) | |
| CIR: 2.70 | Bank: 5.65 |
| 1 Year (Convertible) | |
| CIR: 2.70 | Bank: 5.65 |
| 1 Year (Open) | |
| CIR: 2.70 | Bank: 5.65 |
| 2 Years | |
| CIR: 3.45 | Bank: 3.65 |
| 3 Years | |
| CIR: 3.5 | Bank: 4.1 |
| 4 Years | |
| CIR: 3.89 | Bank: 5.24 |
| 5 Years | |
| CIR: 4.19 | Bank: 5.80 |
| 7 Years | |
| CIR: 5.15 | Bank: 6.0 |
| 10 Years | |
| CIR: 5.49 | Bank: 6.19 |
