Mortgage Term Review

Best-Mortgage-terms Here is the very latest mortgage term review, updated to reflect notable rate developments of the past 4 months.

  1. Feel free to delete this entirely off-topic post, but I’m not sure what other Canadian Mortgage Forum to post on:
    If I am contemplating 20% down on a home, is there any reason for trying to get CMHC insurance in spite of the fact that I don’t need it? The people I am speaking to are telling me to stay away from the CMHC whenever I can, but I worry about the possibility of a major bank not wanting to renew in 5 years if TSHTF and prices have fallen enough by then to put me underwater.
    I think the bank looks at a CMHC insured mortgage as being “money good”, since someone is going to pay them in the end, but if I don’t have it the bank would be looking at my situation more closely when it’s time to renew even if I have been well behaved.
    No one knows the future of course, but its difficult to figure out which of their all-encompassing rights banks would enforce and which ones are not a realistic threat to me. I think if you miss a payment by one day you are in default which would give them the right to foreclose even though they would almost certainly never do so…
    So what up?

  2. Some lenders insure mortgages with 20% down so they can sell them in the securitization market. I really doubt a major bank would not offer you a renewal if you make all your payments on time. I guess technically a CMHC insured mortgage would be more attractive at renewal, but I don’t think it makes a difference if you pay on time.

  3. If you’re conventional and underwater your bank will definitely demand that you pay down your mortgage and/or get high ratio insurance on renewal.
    I.e. if you come up for renewal and your LTV is 90%. They’ll either make you make a 10-15% privilege payment or make you get insurance.
    You save a lot of pain by insuring up front. But only if you expect housing prices to drop.

  4. John, How would the bank even know if you are “underwater”? They don’t re-appraise the property at renewal do they?

  5. If housing prices decline it wouldn’t just be this one house.
    The banks will be able to estimate the equity in their conventional mortgage portfolio and require an appraisal on renewal to confirm equity.

  6. I have never heard of a lender reappraising a performing loan at renewal, even after the housing drop of 89.

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