5 Year Fixed 3.39%

5 Year Variable 2.45%

The Days Of Talking Mortgage Rates At The Water Cooler Are Over

The Days Of Talking Mortgage Rates At The Water Cooler Are Over

Date Posted: November 10, 2017

Consider two couples looking to purchase the same house at 456 Maple Lane with a purchase price of $400,000. Both sets of clients have excellent credit history and great job stability. Bob and Barbara are looking to put a down payment of 5%, giving them a loan to value of 95% which is a high ratio mortgage. Shawn and Steve will be putting a down payment of 20%, giving them a loan to value of 80% which is a conventional mortgage. In terms of who gets the better rate, Bob and Barbara with less down payment and a high ratio mortgage will get the lower rate of the two couples.

Wait... WHAT?! Shouldn’t the couple with more down payment get the better rate?

The mortgage rule changes in the Fall of 2016 have made a significant difference to the way mortgage interest rates are determined. Those changes made a number of mortgage categories not eligible for default insurance (CMHC), including non-owner occupied rentals, refinances, mortgages with amortizations greater than 25 years, and homes over $1,000,000. Almost all mortgages end up being insured at some point. Banks and large deposit holders insure their mortgage portfolios with default insurance for the purpose of securitization (to move the mortgages as assets into investments such as mutual funds). Other mortgage lenders obtain their funds through investors who often require the mortgage portfolio to be insured for the same reason. In these last scenarios, the mortgages are insured through what is called “bulk insurance”. This is insurance paid by the lender for the insurance coverage provided, but at a reduced rate to the premiums that borrowers pay. In cases where the insurance is already paid (such as homeowners with less than 20% down payment), the lender does not have to incur the cost of insuring the portfolio. In that case, many of the non-bank lenders pass the savings on to home owners in the form of a reduced interest rate for mortgages with less than 20% down payment.

Let’s take a look at a few other scenarios with couples that have large down payments and more equity that will obtain higher rates for their mortgages.

  • Mary and Martin are looking to purchase a rental property to add to their financial portfolio and purchase a property for $400,000 with a down payment of $100,000. They will be in the highest rate category.
  • Peter and Patricia have paid off their home and are now mortgage free. They have decided that some home improvements are in order and want to refinance to take out a mortgage of $200,000 on their $400,000 home. Their mortgage rate- you guessed it, will be in the highest category.
  • Tom and Tracey have decided to move to a new home. Their new home has a purchase price of $1,200,000 and they have a whopping $1,000,000 as a down payment. The new loan to value on their home will be 17% yet they have the highest rate category.




Purchase Price/ Home Value

Equity LTV Mortgage Amount Rates
Bob & Barbara $400,000 $20,000  95%   $380,000 Lowest
Shawn & Steve  $400,000 $80,000 80% $320,000 Higher
Mary & Martin (Rental) $400,000 $100,000 75% $300,000 Highest
Peter & Patricia (Refinance) $400,000 $200,000 50% $200,000 Highest
Tom & Tracey $1,200,000 $1,000,000 17% $200,000 Highest


As you can see, the same house, with customers who have the same profile, excellent credit, good income, great job stability, can all have different rates dependent on the type of mortgage and amount of down payment. 

Talk to a Mortgage Broker today for more information!