With the newest stress test coming into effect on January 1, 2018, the lending environment has become – once again – a little more complicated. Interest rates for what seem to be the same product can not only vary from lender to lender, but also with the same lender. The three categories below should provide some insight with regards to how lenders are qualifying and pricing mortgages. These do not cover every option or scenario, please speak to your mortgage professional for personalized advice.
Buyers with less than 20% down payment – high ratio mortgages:
– Under government regulation these mortgages must be insured by CMHC, Canada Guarantee or Genworth.
– These loans must meet both lender and insurer guidelines.
– The mortgage loan insurance premium is added to the mortgage (see chart on next page)
– Qualification is based on maximum amortization of up to 25 years.
– Borrowers must qualify at a government-controlled rate – benchmark rate – currently 5.34% (June 18, 2018)
– As these loans are insured, they carry the lowest risk to the lender and investors purchasing mortgage backed securities.
– Due to the lower risk, these mortgages usually offer the best interest rate.
– The purchase price must be under $1,000,000
Buyers with 20% or more down payment – conventional mortgages:
– The maximum amortization is usually 30 years
– Qualification is based on amortization up to 30 years
– Borrowers must qualify at the actual rate plus 2% or the benchmark rate (whichever is higher)
– The risk of default is usually carried by the lender and therefore these mortgages are seen as higher risk than high ratio mortgages.
– Due to higher risk, the interest rates are usually less competitive than high ratio or insurable mortgages.
Buyers with more than 20% down payment and the mortgage is “insurable”:
– These mortgages must meet both lender and insurance guidelines
– The maximum amortization is 25 years
– Qualification is based on amortization of up to 25 years
– Borrowers must qualify using the benchmark rate
– The purchase price must be under $1,000,000
– The insurance premium is usually paid by the lender behind the scenes, resulting in a lower risk mortgage than a standard conventional mortgage.
– Due to the cost of the insurance premium, the interest rates are usually between conventional mortgages and high ratio mortgages and often vary depending on how much down payment is made.
How is Basement Suite Income viewed?
There are several ways basement suite rent is viewed. The most common two are below:
Rents added to personal income. There are usually two percentages used 50% (most common) and 100%. As the rent is being added to personal income, the actual amount of rent offsetting your mortgage cost works out to about 20% to 40% of the actual rents. This is because lenders generally use between 35% – 39% of income towards housing costs. As a best-case example, $1,000 in basement suite rent would cover $195 in mortgage payments at 50% added to income ($1,000*50%*39%). With 100%, the amount would double to $390.
Another method that utilizes a higher amount of the rent for qualification takes a percentage of the rent offset against the cost of borrowing. For example, some lenders use 75% to 90% of the basement rent offset against the cost of borrowing during qualification. In this case, $1,000 would cover $750 of the housing costs when qualifying using 75% offset. This calculation requires the mortgage to be conventional and is less commonly used.
Qualification Guide:
Benchmark qualifying rate of 5.34% over 25 years was used to generate qualification income on mortgages with less than 20% down and 5.74% over 30 years for mortgages with more than 20% down. We have used a conservative qualification guideline of 35% of total income for housing costs. Please use this as a guide only as with good credit and low liabilities, you will likely qualify for more. Actual payments use a rate of 3.34% for less than 20% and 3.74% for more than 20% down payment. Please check current rates for actual numbers.
|
Down payment greater than 20% |
down payment Less than 20% |
| Mortgage Amount |
Income Required |
Actual Payment |
Qualifying payment |
Income Required |
Actual Payment |
Qualifying Payment |
| 200,000 |
$54,000 |
$1,024 |
$1,249 |
$52,000 |
$982 |
$1,202 |
| 250,000 |
$64,000 |
$1,280 |
$1,561 |
$62,000 |
$1,227 |
$1,503 |
| 300,000 |
$75,000 |
$1,536 |
$1,873 |
$73,000 |
$1,473 |
$1,803 |
| 350,000 |
$86,000 |
$1,792 |
$2,186 |
$83,000 |
$1,718 |
$2,104 |
| 400,000 |
$96,000 |
$2,048 |
$2,498 |
$93,000 |
$1,963 |
$2,404 |
| 450,000 |
$111,000 |
$2,304 |
$2,810 |
$108,000 |
$2,209 |
$2,705 |
| 500,000 |
$122,000 |
$2,560 |
$3,122 |
$118,000 |
$2,454 |
$3,006 |
| 550,000 |
$133,000 |
$2,816 |
$3,434 |
$128,000 |
$2,700 |
$3,306 |
| 600,000 |
$143,000 |
$3,072 |
$3,747 |
$138,000 |
$2,945 |
$3,607 |
| 650,000 |
$159,000 |
$3,328 |
$4,059 |
$153,000 |
$3,191 |
$3,907 |
| 700,000 |
$169,000 |
$3,584 |
$4,371 |
$164,000 |
$3,436 |
$4,208 |
| 750,000 |
$180,000 |
$3,840 |
$4,683 |
$174,000 |
$3,681 |
$4,508 |
| 800,000 |
$191,000 |
$4,096 |
$4,995 |
$184,000 |
$3,927 |
$4,809 |
| 850,000 |
$201,000 |
$4,352 |
$5,308 |
$195,000 |
$4,172 |
$5,109 |
| 900,000 |
$212,000 |
$4,608 |
$5,620 |
$205,000 |
$4,418 |
$5,410 |
| 950,000 |
$223,000 |
$4,864 |
$5,932 |
$215,000 |
$4,663 |
$5,711 |
| 1,000,000 |
$233,000 |
$5,120 |
$6,244 |
NA |
NA |
NA |
Mortgage Insurance:
Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum 5% down.
Premiums are calculated as a percentage of the mortgage amount and depend on the down payment relative to the total purchase price; the lower the down payment, the larger the premium. The premium is usually added to the loan amount. Higher premiums may apply.
| Down Payment |
Premium |
| 15% to 19.9% of purchase price |
2.80% |
| 10% to 14.9% of purchase price |
3.10% |
| 5% to 9.9% of purchase price |
4.00% |
Minimum Down Payment Guide
– For a purchase price under $500,000 > 5%
– For a purchase price over $500,000, the first $500,000 remain at 5%. For the amount over $500,000, 10% is required.
– For a purchase price over 1 million, a minimum 20% is required for the entire value.
For example, a home costing $700,000 would require a $45,000 down payment – 5% down payment on the first $500,000, added to a 10% down payment on the remaining $200,000.
| Minimum Down Payment Guide
for Home Purchase Price over $500,000 |
| Home Purchase Price |
Minimum DP Percentage |
Minimum DP Amount |
| $500,000 & below |
5.0% |
up to $25,000 |
| $600,000 |
5.8% |
$35,000 |
| $700,000 |
6.4% |
$45,000 |
| $800,000 |
6.9% |
$55,000 |
| $900,000 |
7.2% |
$65,000 |
| $999,999 |
7.5% |
$75,000 |
| $1,000,000 & above |
20.0% |
$200,000 & up |
