In this video we talk about the different type of mortgages — what are
they and how do you qualify? That's starting right now.
– Welcome to Homebuyer's School,
brought to you by Brookfield Residential.
– Hi everyone I'm Karl, and welcome to to another Homebuyer's School video,
a channel to get the latest strategies, tactics and tips from home buying
experts — and remember, if this is your first time on this channel
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don't miss anything. So today I'm joined by Mujtaba Syed, mortgage specialist
with the Bank of Montreal, and the question we're gonna answer today is,
what are the different type of mortgages in Canada?
– That's a good question Karl. So the type of mortgages that we have in Canada are
insured—there are two different types— insured and conventional. So what
insured means is that it's actually default insured. Like you've probably heard of
CMHC, Genworth, Canada Guaranteed. These are the default
insurance providers here in Canada.
– Let's just stop there. What is CMHC? What does that mean?
– Sure, absolutely. So CMHC is a crown corporation. It means
Canadian Mortgage Housing Corporation, and they're a part of the government but
kind of a separate—but they're a crown corporation. They provide default
insurance just like Genworth does and Canada Guarantee. So default insurance,
what it is it kind of protects the banks from default so prior CHMC being
around, the banks were not really giving mortgages that easily unless you had 20%
down. So the government kind of set up CMHC to be like, let's help more people
get to homes a lot sooner. So now you can get into a home with as little as 5%
down as long as you have default insurance. So the way it works is, god
forbid you fall into a mishap, something's happened and you can't pay
the mortgage, the mortgage or the home goes into foreclosure.
The banks are covered through default insurance. So that is what insurance is.
The pros and cons to have insurance is, one – is an easier approval process. The
banks feel a lot more comfortable. Since they're a lot more comfortable,
the banks will actually give you a better rate because they feel like they
have less risk associated with that. So the funny thing is, the less you put down—if
you have 20% compared to an insured mortgage of 5%, you actually get a
better rate. But you do still have to pay for the insurance. So sit down
with your lender, sit down with your specialist to find out what the benefit is.
Is it a benefit to go with the insured to get a lower rate—or is it better to put the
20% down if you have it and save on a default insurance. That's something—
a conversation to have with your lender.
The second type of mortgage that we have is considered conventional, which
is just the opposite where you're putting
more than 20% down, you have 20% equity in your home and you don't need
any default insurance. It is just a mortgage between you and your lender.
Rates tend to be is slightly a little bit higher because of the fact it's not insured.
What banks have to do now, they have to price it accordingly because they might
have to go and get insurance privately through a third party, whatever it might
be. So rates usually are higher—I get that question a lot from my clients
asking me – I'm putting more down, should I not be getting a better rate?
Traditionally that is the understanding, but the rules changed about a year and a
half ago called the B-20 Mortgage Rules, where it was kind of put into place where
banks would now start having to insure their own mortgages. So because of that,
cost has actually gone up. So that what a conventional mortgage is. But one
of the benefits of conventional mortgage is you don't have to pay for default
insurance. That could be a potential savings of a couple thousands
of dollars—and the other potential benefit is—or is a benefit—
is you can take your amortization on conventional mortgage up to 30 years.
So if you have a 20% down payment and you're really interested in having a
lower payment every month, you can only do that with the conventional. You can
take it to 30 years. While with an insured mortgage, amortization is
maximum at 25 years. Unfortunately you can't go more than that.
– Are the payment plans different from a conventional to a insured mortgage?
– So the way the repayment works is exactly the same. So they both are
mortgages, it's just that now the rate might differ, and the
amortization might differ—and you might not be insured. But the repayments
going to work the same way. You can have weekly bi-weekly, monthly, semi
monthly payments, and it gets paid down the same amount.
– Cool. So Mo, with an insured mortgage
you will technically have higher payments because you have to
pay for the insurance on top of your monthly mortgage payments right?
– Traditionally yes, but the amount is over the life of the loan to
25 years is very negligible. So it's barely noticeable. So for example
if you're buying a house and the insurance premium's over $11,000, that's
$11,000 over 25 years—that can be a couple dollars a month. So you
won't really notice it. So it really just depends on the size of your mortgage,
what the insurance premium is, and then —yes so it'll definitely have to be
repayable for sure. The payments would technically be higher than a
conventional, but not enough for you to lose sleep over, or notice to be honest.
– Do you have anything else to add?
I think we've kind of gone over a lot of
information. If you have any questions about that please reach out to us.
That was a lot of material we did go over recently so just let us know what
your questions are and we'll be more than happy to get back to you guys.
– Perfect, and the question of the day I have for you is, what type of mortgage
have you used in the past—insured or conventional—and what was your
experience? Let us know in the description below—and remember if you
enjoyed this video and found it helpful, make sure to like, share, and comment as
well as subscribe. Thank you and we'll catch you next time.
– That's another edition of
Homebuyer's School. Tune in next time
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