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MCAP 79. A New Twist in “A” Mortgages

MCAP 79 MortgageAs those in the mortgage business are painfully aware, Department of Finance rule changes have made low-ratio mortgage insurance far more expensive—well over 200% more expensive in some cases. For mortgage finance companies who rely on insurance for securitization, that’s a serious problem.

One of the more inventive solutions to this problem comes from MCAP, with its new “MCAP 79” mortgage. The product, which launched last week, comes with an eye-catchingly low 5-year fixed rate (as low as 2.29% at 65% LTV). There’s also a 1% fee, which can be capitalized into the mortgage. MCAP uses the 1% upfront fee to offset its insurance and capital costs.

The product has all of MCAP’s bells and whistles—i.e., 20% prepayment privileges, portability, a fair prepayment charge and a 120-day rate hold. It’s available on insurable owner-occupied purchases with LTVs up to 79%. The primary applicant needs a 720+ credit score and the maximum property value is $1 million.

Will Consumers Bite?

Triple-A quality borrowers aren’t used to paying a fee, regardless of how low a rate is. In this case, they’ll obviously want to know the total borrowing cost of MCAP’s 79 mortgage versus competing products.

We ran the numbers, and given:

  • a 65% LTV
  • equal payments, and
  • a mortgage held to maturity

…the effective rate of the MCAP 79 beats virtually all competing rates above 2.52%.

Assuming the mortgage is not broken early, the MCAP 79 is currently the best low-ratio 5-year deal from any broker lender. Albeit, breaking the mortgage early can change that because the 1% fee is non-refundable and there’s a $300 to $500 reinvestment charge in the first three years.

Time will tell how MCAP 79 performs in the marketplace. But whether it’s a hit or not, MCAP’s product team deserves a gold star for creativity. 

If it retains its cost advantage, and if brokers can get clients past the fee and sell the overall borrowing cost advantage, the product could see some success.

  1. The way I see it in the above example is that the borrower is paying 3.29% to get the mortgage. It doesn’t matter what you call the 1% or whether it’s paid up front at closing or included in the face of the mortgage.

    1. I can see how you can make that assumption, Peter, but it is incorrect. The correct way would be to take the average cost over the 5-year term. A simple way of calculating the 5 year average cost would be: (2.29% rate x 5 years + 1% fee) / 5 = 2.49% average rate per year. As the article states, “Assuming the mortgage is not broken early, the MCAP 79 is currently the best low-ratio 5-year deal from any broker lender.”

  2. Rob, did you do the numbers based on the 79% LTV which would be the majority I think. Based on best rate on conventional at around 2.74%

  3. The real 5 – year Fixed Rates for Purchase is 2.59% from most bank mortgage specialists. That being said thank you MCAP for putting another arrow in the quiver for mortgage brokers in Canada.

    MCAP has become the Innovator-In-Chief for the mortgage brokerage industry, big thanks for that.

  4. Am I missing something here? At 65% LTV the insurance premium would be .60%. If the cap is $1m and the borrower must have good credit, and income – is this not an insurable loan? Why is there a 1% fee to the borrower when the insurance premium on this LTV did not increase as all the other insurance levels did? Wouldn’the the borrower be better off to pay the insurance premium if that were an option?

    1. I think they wanted to keep the same 1% fee across the board. They probably used the balance of the 1% fee to buy down the rate more at 65% LTV.

  5. Congrats to MCAP for coming up with this innovative product. However, I’m not certain how much business this product will garner for many reasons:

    1) Only available for purchase which shuts out switches and refinances
    2) Only good for insurable deals so those who do not qualify at 4.64% are out of luck
    3) Only good for properties less than $1,000,000 so no good for GTA and GVA
    4) From a pricing perspective, it is priced to be competitive only for those less than 65% LTV. Above 65% LTV the math makes them less competitive than others
    5) Good luck convincing clients to capitalize a 1% fee into their mortgage. Clients will just not get it as most people are not wired to think this way. These AAA clients have never paid a fee and won’t start now. And for those clients who get the math and are good with it, once they think it through further that the 1% is a sunk cost which they cannot recoup should they want to break the mortgage early, they will realize that the math only works in the products favour ONLY if the client keeps the product in place until maturity. Well, we all know the average duration of mortgage is well below 60 months…….

    I’m not trying to be skeptical here. I think it is great that MCAP are putting other products on the table for us brokers. I just think this will be a tough one form which to get traction. If I look into my business (and I only do AAA biz), I would have less than 1% of clients who would qualify for this (Purchase only / value less than $1,000,000 / LTV less than 65% / insurable only). Truthfully, I can’t recall the last time I did a purchase with a LTV less than 65%.

    Then there is the discussion with the client to sell them on the idea to put 1% fees into the mortgage. Even for those clients who get it, it would be a heck of a lot easier to move on to another product which is close on the math.

    I wish them well with this and looking forward to see how well this does,

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