“What’s your best 5 year fixed rate these days?”
That is probably one of the most common questions I get as a mortgage broker. In the past it was an easy question to answer, unfortunately that’s not the case anymore.
Today there are 4 different categories a borrower can find themselves, each with a different set of interest rates. In order to understand how we got here, we have to take a time machine back to October 2016. A red hot real estate market, in particular Vancouver and Toronto became a concern for the government. It was determined that the best course of action was to be proactive, the market needed to be cooled in order to keep consumer debts in line and avoid any potential real estate bubble in the future. We can argue if the government correct in their logic, but we’ll save that for another blog some other time!
The federal government introduced a “stress test” to be used in approving all high-ratio insured mortgages (purchases with less than 20% down payment). It required such borrowers to prove they can handle payments at the Bank of Canada’s posted 5-year rate. The new “stress test” regulations were also extended to include insured mortgages with 20% equity or more. It was decided that certain mortgages including refinances, amortizations higher than 25 years, and single-unit rentals could no longer be insured.
This created the “Insured Mortgages” and “Un-insured Mortgages” categories.
Over time, as lenders began figuring out how these new rules would affect their business a third category of rates began to show up called “Insurable Mortgages”. Picture a borrower that has more than 20% down payment but could qualify under the insurer guidelines….A large down payment, AND they qualify under more strict insurer guidelines, obviously the lenders would love a bunch of mortgages like that in their portfolio hence the new category was created.
Eventually as the dust began to settle it was deemed that rental properties do pose a bit more risk to lenders. Rentals were always a bigger risk in the past and now there is no way for the lender to insure these loans sooooo you guessed it….”Rental Mortgages” become its own category with its own set of rates!
Did you follow all that?
That leaves us with:
• Purchase or renewal
• 25 year amortization max
• Mortgage must be under $1,000,0000
• No Refinances
Today’s Insured 5 year fixed rate – 3.14%
• Purchase, Refinances, Renewals
• Amortization over 25 years
• Mortgages over $1,000,000
Today’s Un-Insured 5 year fixed rate – 3.49%
• Client has more than 20% down payment
• 25 year amortization
• Mortgage less than $1,000,000
• Not a refinance
Today’s Insurable 5 year fixed rate – 3.19%
• Single Unit
• Amortization over 25 years
What’s your best 5 year fixed you ask? Let’s sit down and have a quick chat first before I can tell you!