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Renewing your mortgage is an opportune time to reassess your needs and ensure the mortgage is working for you and not the lender. Rate is the easy part, but not all mortgages are created equal. Let’s look at the whole picture, adapting the term, payments, and privileges to your advantage.

Mortgages

Insured Vs. Conventional

Canadian mortgages vary based on their loan-to-value or, put, the percentage of the down payment. The home is an asset, securing the mortgage loan. The more that is owed relative to its value will dictate what type of mortgage is needed.

In the eyes of the bank, it's all about risk. Among other variables, such as Credit Scores and Income, the main factor is the property loan-to-value. In fact, with a large down payment, a homebuyer with a low credit score will have the opportunity to purchase.  However, not every buyer will have a large down payment at their disposal. 

This is where the National Housing Act allows for a purchase with a lower down payment, as low as 5% of the purchase price. To achieve this, the mortgage must be insured to alleviate the risk from the bank, with the insurance premium passed onto the homeowner.

There are many differences between an Insured and a Conventional mortgage. The policies surrounding these are constantly changing, and there are also variations of each, depending on the bank. Here are some of the highlights of each.

The Rate Illusion

Mortgage interest rates are important, but there is typically a reason why an interest rate is low or high behind the scenes. That is why it is best to look at the cost, how much interest you are paying. After all, 2.05% looks better than 2.24%, right?… Not if it means paying an additional $15,760.94, as shown in the example below.

An insured mortgage will have a lower interest rate but at a cost. There is a premium, and it is rolled into the mortgage. Not only do you have to account for this amount, but because it increases the balance, it now increases the amount you pay in interest.

While a conventional mortgage will have a higher interest rate, there is no insurance premium. Even with the difference in rates, conventional mortgages had a lower cost.

Insured Mortgage Conventional Mortgage
Homes Value $325,000
Mortgage Balance $308,750 $292,500 $276,250 $260,000
Mortgage Loan - to - Homes Value (%) 95% 90% 85% 80% & Under
Insurance Premium (%) 4.00% 3.20% 2.80% 0.00%
Insurance Premium ($) $12,350 $9,360 $7,735 $0.00
Total Mortgage Amount $321,100 $301,860 $283,985 $260,000
Interest Rate 2.04% 2.24%
Amortization 25 Years
Monthly Mortgage Payment $1,365.91 $1,284.06 $1,208.03 $1,106.00
Insurance Prem. (including interest) $15,760.94 $11,944.37 $9,871.28 $0.00
Total Interest Paid on Mortgage $88,672.04 $83,359.46 $78,422.55 $71,799.32

Renew your Mortgage

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