New bulk mortgage insurance rules came into effect on Nov. 30 but the changes may not be as bad as some have feared.
There was some uncertainty about whether or not monoline lenders (lenders whose only line of business is mortgage lending) would still be able to provide mortgages on rental properties, mortgages on properties that cost $1 million or more, mortgages with amortizations of more than 25 years, and mortgage refinances in their entirety.
That’s because lenders are no longer able to purchase bulk insurance, also known as portfolio insurance, on those types of mortgages. Typically, they bundle together mortgages and buy portfolio insurance so they can create mortgage-backed securities (MBS). The MBS are then sold to investors and the proceeds are used to lend out money for new mortgages.
Despite the fact lenders can’t buy portfolio insurance for certain types of mortgages, some large monoline lenders like MCAP and First National are still offering them. However, rates on these mortgages have risen anywhere between 10 to 25 basis points—which isn’t a huge increase.
The banks have also increased rates. RBC Royal Bank announced earlier this month it would charge an additional 10 basis points on mortgages with amortizations of more than 25 years. For example, the special offers rate on a five-year fixed-rate mortgage with a 25-year amortization is 2.94%. But the rate on the same type of mortgage but with an amortization of more than 25 years is 3.04%.
And TD Canada Trust raised its mortgage prime rate by 15 basis points to 2.85%, which affects the bank’s customers with a variable-rate mortgage.
With rates varying by lender, it’s a good idea to shop around for the best mortgage rates.