Understanding Insured, Insurable, and Uninsurable Mortgage Rates
When navigating the world of mortgages, you’ll come across terms like insured, insurable, and uninsurable mortgage rates. Each of these categories impacts the type of mortgage you can get and the rate you’ll pay. Here’s a brief overview to help you understand the differences.
1. Insured Mortgage Rates
An insured mortgage is one where the borrower has paid for mortgage insurance, typically because the down payment is less than 20% of the property's purchase price. This insurance protects the lender in case the borrower defaults. Due to the reduced risk for the lender, insured mortgages often come with the lowest interest rates. These loans must meet certain criteria set by the government, such as a maximum amortization period of 25 years and purchase price limits.
2. Insurable Mortgage Rates
An insurable mortgage doesn’t require the borrower to pay for mortgage insurance, as they’ve put down at least 20%. However, the mortgage still meets the government’s criteria, so it can be insured by the lender. Lenders may decide to insure these mortgages themselves to mitigate risk. The interest rates for insurable mortgages are usually higher than insured rates but still relatively competitive.
3. Uninsurable Mortgage Rates
An uninsurable mortgage is one that doesn’t qualify for insurance. This could be due to factors like a purchase price above the insurable limit, a longer amortization period (over 25 years), a refinance, or purchasing a rental property. Since these mortgages carry more risk for the lender, they come with the highest interest rates. Borrowers with uninsurable mortgages must be prepared to pay a premium for the added risk.
Conclusion
Understanding whether your mortgage is insured, insurable, or uninsurable is crucial in determining the interest rate you’ll pay. Insured mortgages typically offer the lowest rates, followed by insurable mortgages, while uninsurable mortgages come with the highest rates. Knowing these differences can help you make informed decisions when securing a mortgage.