“Good” credit and “excellent” credit generally get you about the same mortgage rate. That may start to change, however.
A few weeks back, XCEED Mortgage launched a new 5-year fixed mortgage called Super PRIME. It’s a product designed to reward clients with premium credit.
It has a rate today of 2.84%, which leads the market for a reasonably full-featured 5-year mortgage.
Jones notes that, to the best of his knowledge, no other lender offers a similar premium credit mortgage.
There is a clear business case for offering better pricing on this sort of product, Jones says. “These mortgages are easy to approve and cheap to manage…These customers, who have demonstrated great credit management skills and disciplined savings habits, are also far less likely to go into arrears and default.”
In addition to an excellent repayment history, XCEED requires Super PRIME clients to have a 10% down payment, whereas the normal minimum on a purchase is 5%. “People with more skin in the game tend to default less frequently and losses are lower.”
As a side note, one may wonder why XCEED has losses at all on an insured mortgage. The reason is this: Non-performing mortgages also lead to various uninsurable losses and securitization challenges—especially if defaults are above normal. For example, higher defaults mean higher prepayment rates (which can be somewhat of a problem for certain mortgage-backed securities investors). Higher defaults also create reputational issues for lenders that depend on insurers and market liquidity.
It’s not a stretch to expect that more lenders will unveil mortgages for premium borrowers. These products allow lenders to create price segmentation and differentiation, and to attract higher quality customers.
But what, might you ask, does a “premium” borrower profile look like?
XCEED defines it as a borrower with:
- Fully qualified (i.e., provable) income
- A minimum credit score of 740
(The average Canadian score is estimated to be somewhere around 720)
- At least 10% equity
(The down payment cannot be borrowed or gifted)
- An owner-occupied marketable property
Here are some other notables about the Super PRIME mortgage:
- Maximum amortization: 25 years for high ratio and 30 years for conventional mortgages
- Optional lump-sum prepayments: 20% annually
- Optional payment increase: 20% annually
- Portability: Yes
These are some “pros” to the Super PRIME mortgage, as we see them:
- Hands down, an incredible rate
- Standard prepayment penalties apply based on its servicer MCAP’s discounted mortgage rates (not posted rates like some banks)
- Penalty discounting for clients who refinance before maturity with XCEED
- No fully closed term (as is the case with certain other discount mortgages, like on BMO’s “Low-Rate” product or Industrial Alliance mortgages)
- No reinvestment fees or other unusual early breakage charges
- A free home warranty from Encompass (N/A in B.C. or on high-rise condos)
- XCEED is primarily a high-ratio lender that securitizes every mortgage, says Gleb Ioussoufovitch, Director, Sales and Marketing. Therefore, it must insure all of its mortgages and to do that, it uses regular “flow” insurance from CMHC, which is paid by the borrower. (As its volumes grow, Jones says XCEED may consider using cheaper “bulk insurance” on conventional mortgages). As a result of all this, even customers with 20% down are charged CMHC premiums. Given other options in the marketplace, that makes the Super PRIME mortgage suitable only for purchases with 10%-19.9% down.
- A 20-year minimum amortization
- Lump-sum prepayments can only be made once per calendar year (Jones says that allowing prepayments in multiple instalments doesn’t cost a lender that much more, but on a tight margin product, every dollar counts.)
- No same-term blended rate option (i.e., If you need to increase your mortgage for any reason, you’ll pay a penalty. That said, XCEED will blend the penalty into your new rate, if you wish.)
- When porting, the borrower’s old property and new property must close on the same day, otherwise the client pays a penalty. (Most lenders allow at least a 30-90 day gap between your purchase and sale.)
If you’re interested in this product, XCEED mortgages are available through brokers. Mortgage professionals looking to sign up can contact XCEED directly.
The best part about XCEED – from a broker’s standpoint – is that it provides its best rates to all brokers with no status programs, funding ratio requirements or annual volume minimums. “We simply expect brokers to treat us with respect and we treat them in kind,” says Jones.
That’s a much-welcomed attitude from a lender, and it separates XCEED from most of its peers.
Rob McLister, CMT