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Originally Posted by stampsx2
Does anyone know if this will affect those giving 20% or more for their down payment? I'm getting so much mixed information.
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If the mortgage is to be insured and backed by the government, then the borrower would need to qualify at the Bank of Canada posted rate. Lenders have been pretty fond of insuring most of their mortgages (I read that something like 75% of CMHC's coverage is for >20% mortgages), so a lot of borrowers with over 20% down would still need to qualify at the higher rate. Though it still definitely remains to be seen how it'll play out.
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Originally Posted by stampsx2
Not sure how it would benefit the big banks. I mean you're still going to get the best rate with a mortgage broker, you just wouldn't qualify for as much. Unless I'm missing something here.
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Smaller lenders rely on being able to package up government backed mortgages into securitization vehicles and selling them to raise more capital that can then be loaned out. Banks are less reliant on that since they're able to use deposits and other assets to back the loans, so it's possible this could make smaller lenders less viable if it makes insuring mortgages harder. If a bank can get away without insuring a lower ratio mortgage they'll be able to offer better terms and more money than a broker who needs to follow the government rules. So for instance if someone with $250K in salary wants to borrow over $1M for a mortgage for a house in Vancouver, a broker might not be an option after these new rules kick in, whereas a bank would be more able to handle it
That said, I don't know that the effect will be that huge. From what I've read, the government has been cracking down on portfolio insurance for a few years now. And if smaller lenders aren't viable without the government taking on most of the risk, then I'm not sure it's a viable business model.