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Why are Mortgage Interest Rates cheaper on insured Mortgages?

Why are there two sets of mortgage rates for 5 yr Fixed and 5 yr Variable?

In response to our previous post on Thursday, June 14. 2018.  Many of our clients and friends are asking us “WHY is there the difference between Conventional Mortgage rates and High Ratio Mortgage rates”, Well here it is — our explanation, further to our previous post….

High ratio mortgages – Lenders are able to offer lower mortgage rates when mortgages are protected by default insurance…because the risk of default is spread across multiple home buyers.  Once a mortgage is insured, lenders can source funds cheaper, hence pass on the discounts in the form of lower rates.  In the case of a shortfall resulting from a Power of Sale action, the lender is covered by the insurer for the loss.

Conventional Mortgages – for which Mortgage Default insurance is not applied are generally subjected to higher interest rates.  The lender assumes their own risk in case of a shortfall due to the power of sale.  The insurers are not there to protect lenders from potential future loss.  Hence, lenders may offer higher rates on these types of deals to mitigate the risks.

There are a few other reasons why insured rates are lower, for more information contact team Rick Sekhon anytime.

Check out the current CMHC, Genworth and Canada Guaranty Insurance rates below.


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