One big reason that our banking system has fared better during the current worldwide economic instability is largely due to the regulation in our banking industry.
In Canada, in order to qualify for a residential mortgage with a “bank”, with less than 25% down payment, the bank must ensure that the mortgage is high ratio insured. While GE also offers high ratio mortgage insurance, the majority of high ratio mortgages that are insured in Canada are insured by CMHC.
Even if a bank approves your mortgage (or has a strong desire to) and CMHC declines the application for high ratio mortgage insurance, the bank will not be able to grant you the mortgage. This has opened up a whole marketplace of alternative lenders that offer high ratio mortgages. A lender, who is not regulated by the Chartered Banks Act, can fund a high ratio mortgage without residential mortgage insurance.
Your most affordable high ratio mortgage option will most often be offered by a bank and insured by CMHC.
We mentioned the fact that if residential mortgage insurance with CMHC is declined, the bank will not be able to finance your mortgage. When you apply for a mortgage, the bank will submit an application for high ratio mortgage to CMHC.
CMHC has firm lending guidelines and requirements that include that the applicant has good credit, good stability, and verifiable income. CMHC will insure a high ratio mortgage when the applicant has had a past history of bruised credit, provided they have at least two years of strong, re-established credit.
If you own your home and want to refinance, CMHC will high ratio insure a residential mortgage and refinance up to 90% of the property’s value, if the applicant qualifies. In the case of a refinance, this makes obtaining a mortgage much easier because where CMHC insurance is present; banks will often not require an appraisal of the property at an additional expense to the borrower.
CMHC’s residential mortgage insurance premium can range from .5% up to 4.5% depending on how much insurance is required. When the residential mortgage being insured represents a lower loan to value, the CMHC insurance premium is less, and when it represents a higher loan to value, the CMHC residential insurance premium is higher. CMHC high ratio mortgage insurance is added to the mortgage and blended into your monthly mortgage payments.
For more information about residential mortgage insurance with CMHC and when it is required to obtain a high ratio mortgage please contact Paul Mangion at GTA Mortgage Matters by calling 1 (877) 234-8275 or by visiting http://www.gtamortgagematters.com/