Toronto Real Estate Loves Low Mortgage Rates
Improved mortgage products cause surge in real estate market
By Anthony Harte, New Dream Homes and Condos Magazine
The introduction of new and improved mortgage insurance products should result in a surge in real estate activity beginning immediately and continuing over the next few quarters.
An insured mortgage provides remuneration to the lender for part of their financial loss, should a borrower fail to repay his/her mortgage. Lenders for all high-risk real estate financing require mortgage insurance. Typically a mortgage request is deemed high risk when a purchaser’s personal investment/down-payment in the real estate transaction is below 25% and, in some cases, a purchaser’s choice of property will also prompt a lender to request or require insurance. The risk of default and loss to the lender is greater on loans with smaller down payments, or homes with above normal maintenance requirements (properties on well and/or septic, non standard properties etc.).
Canada Mortgage and Housing Corporation and Genworth Financial (formerly G.E Capital) represent the only current mortgage insurance option in Canada. These pioneers initially provided coverage for mortgages where personal investment/down payment ranged from five to 20% of the overall purchase price, with few exceptions. The original format evolved to accommodate even more exceptions, including those with pristine records of repayment or excellent credit. Those who qualified were given posted rates (banks highest rate for the term selected) and were able to acquire a mortgage even while self-employed or as a salaried employee with no-money down.
The newest contributions to the mortgage insurance product line sees increased amortizations (30, 35, and 40 year), 95% refinancing (equity takeout from existing property), and no money down purchase at discounted rates. Multiple and income property allowances for qualified and credit worthy candidates, through increased debt ratio tolerances, less personal investment for the self employed homeowner hopeful (5% down payment), and new immigrant and U.S. resident products round off the line-up.
Increased amortization provides lower monthly payments or affordability, no money down rewards the credit worthy first time homebuyers who perhaps have not been able to save the entire 5% down payment, and provides opportunities for a second or more property investment for those in a position of financial strength (net worth/assets). The would-be investor may wish an income property (rental), to start or develop a portfolio in this Canadian version of the global real estate boom.
The one-time insurance premium is paid at the mortgages inception and is within a range of 0.5 to 4.5% of the total mortgage amount. The premium is then added to the total mortgage amount the sum of which represents the buyer’s total indebtedness. Mandatory, the insurance provides down-payment flexibility and homeownership opportunities for those who would not ordinarily be considered, as well as those wishing to acquire more than one property or several investment properties. Given the appropriate credit history the opportunities for investment in real estate are limitless.
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