I was going to title this blog “insured, insurable and uninsured mortgages” but the title “blah, blah and blah mortgages” may have been equally enticing to a reader. My interest in mortgages isn’t always met with the same enthusiasm; however, whether mortgages excite you or not these blogs can help you gain an understanding of the process and make you feel like you aren’t overwhelmed when you begin the process of getting financing for your dream house.

I often hear people quote rates that are the absolute rock bottom market rates. This often gives people an unrealistic view on what rates they can actually qualify for. When you google “mortgage rates” and look at the first set of advertised rates, that doesn’t necessarily mean that you will qualify for the lowest rates. The rate you can actually qualify for depends on a number of things.

1. Fixed vs Variable: Fixed mortgages are set payments with set interest rates; if rates go up or down the client pays the same monthly payments until the term is over. Variable mortgages are fluctuating payments that follows the market trend (better if you know rates are going down). Variable rates are currently advertised as lower with some exceptions depending on the lender and term. Make sure to know the difference before getting excited for a 1.34% variable rate when you actually want a fixed rate.
2. Term: This is the amount of time the client is committed to specific parameters (lender, rates and other conditions). Term is not to be confused with amortization which is the amount of time it takes to fully pay off the loan. The amount of years within the term determines what kind of rates are paid. Lenders normally offer 1,2,3,4,5,7 and 10 year terms but other types of terms can be found depending on the lender. Traditionally, the lowest rates are a 5 year term which also makes it the most popular. Be sure to know what type of term you’re interested in before expecting a certain rate.
3. Limited: Certain mortgage rates have limits to them or are only available for a limited time. One example is Bona Fida sale clauses: this clause within a mortgage blocks you from refinancing with another lender when your term is over and either has extremely high breakage fees or simply wont allow you get out of your mortgage. Quick close mortgages are another example: these mortgages are only available for a limited time and require the closing date to be within a specified time period. There are other clauses and programs that offer low rates just like the two listed above that home buyers should be carful about. Make sure to read or have a mortgage agent read over the commitment before you get into something that might not benefit you in the long term.

The listed items above are very simple explanations of how certain aspects of a mortgage could confuse someone with regards to rates; however, to throughly explain all of the details would require a much longer post. If you want to find out more, please reach out.  I’d love to talk with you about your plans.

If you’re not already teeming with excitement about rates and how to remain confident in a market with hundreds of mortgage programs, here’s the grand finale that determines what type of rate you can get: Insured, insurable and uninsured mortgages! Yes, the exclamation mark was necessary. It’s just that important. I find myself quoting those three words everyday to figure out what type of rate I can get for my clients. Let’s go through them!

Insured mortgages or high ratio mortgages offer the lowest rates because they are least risky to the lenders. They require the borrower to pay an insurance premium that protects the lender if the borrower were ever to default. This type of mortgage is mandatory when the down payment is under 20%. They also have a maximum 25 year amortization, raising monthly payments and lower borrowing power because the client wouldn’t be able to stretch payments over 30 years. Also, if the client requires a mortgage on a rental property, refinancing or for a property above a million dollars they would not be eligible for an insured mortgage. I often hear people quote insured rates because they’re the lowest. Even though they’re the lowest, make sure you can qualify for an insured mortgage and make sure the added premium/restrictions are viable for you.

Insurable mortgages normally offer rates higher than insured mortgages but lower or similar to uninsured mortgages. They also require mortgage insurance and are less risky to the lender. However, the insurance premium is paid by the lender and not the borrower to protect themselves. Insurable mortgages follow all of the same guidelines as insured because they’re not available to clients wishing to purchase a rental property, get a refinance or purchase a property over a million dollars. The only difference is that down payment has to be over 20% and no insurance premium is paid by borrower.

Insured and insurable mortgages are restricted to clients purchasing a property over a million dollars; however, if a property was purchased for under a million dollars and that property appreciated in value over the first term of said mortgage the client would be allowed to stay in their insured or insurable mortgage until the end of the term.

Uninsured mortgages offer the highest rates because they aren’t insured and as a result riskier to lenders. This mortgage allows for everything that insured and insurable mortgages allow and have less restrictions. Rental purchases, refinances and properties above a million dollars are all uninsured deals. They also allow amortization up to 30 years, giving clients more borrowing power and a 20% down payment or more is required.

In summary, mortgage rates depend on a multitude of factors and it’s more important to fully understand your mortgage than disregarding a mortgage product simply because it’s rate is not rock bottom.

I’m a young agent in the mortgage industry and because of this many of my clients are young first time home buyers.  I’m often asked to complete pre-approvals for first time home buyers to help them determine what they can afford.  This has given me a unique perspective in understanding on how young people view pre-approvals. 

The entire mortgage process can be lengthy and at times frustrating; however, working with a reputable mortgage agent can help make the process more organized and less stressful.  I like to break the mortgage journey into steps which allows the client to focus on one task at a time which helps make the process clearer.  I could describe each step in detail but you would end up reading a book and not a blog, so I’ll start simply and focus on one step at a time. The first step in helping my clients (first time home buyer or  repeat home buyers) purchase a  house is evaluating how much they can afford. This is done through a pre-approval. In my experience, most people have a general idea of what a pre-approval is but they don’t always understand the steps involved and how important it is. Pre-approvals are extremely beneficial because of two main reasons; estimated price range and rate holds. 

When you decide to enter the housing market, you can’t just start looking at any home. Obviously, the housing market has different price ranges and you could potentially get into a risky situation if your offer gets accepted on a house that you can’t ultimately afford. Lucky for you, you’re reading my blog and you’ll see that getting pre-approved before the house hunting process starts is the smartest move. When you reach out to me for a pre-approval I look at three main things: income, down payment and credit.

By providing a few income documents I can see what you can afford from a monthly payment perspective and I’ll make sure your debt to income ratios would be acceptable to a lender. After considering your income, a picture of the loan amount starts to come together.

An estimation for a down payment is added to the loan amount to see the potential purchase price (mortgage loan + down payment) . It also determines what type of loan you could possibly get: high ratio (less than 20%, insurance premium), insurable (over 20%, max 25 year amortization) and uninsurable (over 20%, max 30 year amortization). A lot more goes into the types of loans listed above but I’ll leave that  for a different blog. The down payment could come from a variety of sources (savings, equity, gifts etc..) 

Pulling credit is the final stage of the pre approval. It provides an overview of the client’s ability to pay off previous or current loans. Credit can be confusing and i’m going to cover this at a different time but if you have any questions about credit please feel free to reach out. Generally, a credit score of 650 or higher is usually acceptable; however, exceptions can be made depending on the lender or the equity that the client has.

Once the income, down payment and credit are identified, a mortgage amount that is affordable and that the lenders will most likely approve will be estimated. This pre-approval number is not 100% guaranteed as anything could happen from that time to an actually approval date. A pre-approval is simply a snapshot of your current situation. Thats why it’s important to not change jobs, take on new debt and spend large sums of money unnecessarily. We will then submit that information to a lender for a pre-approval letter (almost every lender will give a letter). It’s an automated system so the letter is received relatively quick as a computer system trusts the information that was imputed. Once a pre approval letter is received the client gets a rate hold.

If you’re shopping for a home, or have worked with a mortgage professional in the past, you’ve most likely heard of rate holds before. If not, it is something that every potential homeowner should be aware of. If you are not familiar with the term, a ‘rate hold’ refers to locking in a specific mortgage rate for a limited period of time. This is offered through most lenders, assuming you are a potential client looking to purchase a home and need a mortgage.

If you qualify for a rate hold, there are a few things you should know – from restrictions to benefits! The first and most important is that rate holds are typically only offered for a period of 90-120 days. So, once you have created your mortgage application with a broker and submitted it at the interest rate that best suits you, that rate will be protected for 90-120 days while you shop.

A rate hold is not a commitment. It does not force you to work with that specific lender. It also does not affect your future chances of receiving approval down the road. This can be truly beneficial in volatile markets or those with high competition. If you submit your application to a lender for a fixed rate of 2.49% on a five year term, but while you are searching for your perfect home that rate moves up to 2.99%, the rate hold will protect you and allow you to still sign at 2.49%. This can mean huge savings!

Another benefit is that, if the rates go down, it does not stop you from taking advantage of the lower offer. Instead, it protects you from rate increases after you’ve determined your budget and are in the process of purchasing a home. It is also important to note that, once the rate hold expires after 90-120 days, there is nothing stopping you from submitting another rate hold. It will just be subject to the interest rates as they stand on the day of submission.

I hope this information of pre approvals helped your understanding. I will be posting weekly blogs about the mortgage world!