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Insured, Insurable, and Uninsurable mortgages can be confusing. Still, if you are looking at buying a house with a mortgage, it is inevitable to know what they are and which will be the right option for you. This knowledge will help you determine your mortgage readiness.
These are default-insured mortgages for new purchases of an owner-occupied property or selected vacation and second home properties with a down payment of less than 20% of the purchase price.
The default insurance on this type of mortgage protects the lender if you default on your regular payments. It does not protect you, the borrower, but the borrower pays the insurance cost. You can either add this insurance cost to your mortgage loan and pay it over time or pay it off upfront.
CMHC, Sangen, or Canada Guaranty provide these default insurance policies. Insured mortgages require qualification at both the lender’s and insurance provider’s levels. To qualify for this mortgage, you need to satisfy the minimum credit score, credit history, debt-service ratios, and stress at each level.
It is important to note that insured mortgages are only available for new property purchases. They are not available for refinancing a property you already own.
These are mortgages that fit the bracket of the income and credit criteria of the default insurance provider, except that the property value is more than $1 million. These mortgages are not eligible for default insurance because of the high property value.
These are mortgages for new owner-occupied purchases or straight renewals with/for a down payment of 20% and higher that are default insured by the lender, not the borrower. The good thing about this type of mortgage is the lender pays for the insurance premium, not you, the borrower. The mortgage rates also are given insurance protection, which reduces the lender’s default risk. However, the rates are often higher than those of an insured mortgage, the lender’s cost of insuring the mortgage.
Insurable mortgages require you to qualify under the insured mortgage debt to service and income rules.
Top mortgage rates for these mortgages are available from monoline mortgage lenders such as Home Trust, RFA, MCAP, First National, and other major banks such as TD Mortgages and Scotia Mortgages.
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Traditional lenders offer these mortgages but do not qualify for default insurance because the property value is more than $1 million or the amortization period is more than 25 years.
Are refinance prime mortgage solutions. They fit the qualification criteria of traditional lenders but are not insured. Prime mortgage refinances in this bracket. This loan is not eligible for default insurance because of the high property value.
They are mortgages offered by a prime mortgage lender that cannot be insured against default. Any mortgage that does not qualify within the guidelines of an insured or insurable mortgage is considered uninsurable. This includes mortgages with an amortization period of more than 25 years, refinance mortgages, and some rental property mortgages.
Unlike with insured or insurable mortgages that are default insured, the lender is not protected with this type of mortgage.
The risk-on uninsurable mortgages are high for mortgage lenders. As a result, the interest on uninsured mortgages is higher than on other prime lender mortgages.
Lenders are not required to follow the default insurance providers’ guidelines for uninsured mortgages, given that they are not default insured. Lenders are more flexible in their qualifications for uninsurable mortgage loans.
Uninsurable Mortgage Basic Characteristics