Comments on: Most Canadian Mortgage Borrowers Are Choosing Higher Interest Rate Risk Exposure

By: Mortgage Guy

Mortgage Guy — Wed, 02 Mar 2022 04:14:56 +0000

Pretty much nailed it with some small details.

An insured mortgage insures the lenders for losses. A loss would be whatever the mortgages is minus whatever can’t be recovered by taking the house and disposing of it. So if a property sells for $900k, and the mortgage owing was $1M, the insurer would provide the $100k gap. Not a big issue as these levels, but they’re cheap because the gov backs them so there’s no risk.

Uninsured mortgage is more expensive because of no insurance but the odds of losing money are slim. The home has 20% equity minimum and an average of 35%. For a loss to occur, the house would have to drop 20% or more and person would have to not pay the whole time. It happens, but it’s pretty rare.

By: Damian

Damian — Tue, 01 Mar 2022 19:02:26 +0000

What if those who were were suppose to be stress tested, really were not, and their mortgage was pushed through to keep the economy moving? Could be a bigger problem than expected if rates move up even a small amount.

By: Jeff

Jeff — Tue, 01 Mar 2022 18:36:35 +0000

In reply to Arthur. You might be right, but inflation is probably going to be even more insane. We'll see what happens.

By: Shane-O-Mac

Shane-O-Mac — Tue, 01 Mar 2022 15:53:41 +0000

Forgive me for asking this –

For insured mortgages, the lender is insured in the event of default by the borrower and paid by the borrower.
For uninsured mortgages, the interest rates are higher for the borrower, but is this the only downside – in the event of default?
Is the lender then “on the hook” for the uninsured loan, and/or can the lender then take losses from the defaulted borrower?
Unless I am missing something, it seems there would be very little accountability in the event of a downturn or worse. 🤔

By: Arthur

Arthur — Mon, 28 Feb 2022 21:48:33 +0000

Ukraine is all important now.
Therefore BofC will have little intention to raise interest rates.

By: Doomcouver

Doomcouver — Mon, 28 Feb 2022 19:13:41 +0000

In reply to Lou Chao. Yeah the Canadian government should have taken the bitter pill and allowed the pandemic to pop long-standing asset bubbles in this country. Now the bubbles are bigger, and the pressure to raise interest rates has never been higher. Now, instead of a short but rapid correction from the pandemic, we're risking a slow, disorderly unwinding as rates begrudgingly rise at the BoC.

By: Doomcouver

Doomcouver — Mon, 28 Feb 2022 19:11:00 +0000

In reply to Frank Daugherty. Considering our housing market has sidestepped multiple financial catastrophes as prices were shooting straight up I guess it's logical in a weird way to keep investing. The problem is it's intrinsically unsustainable and it's tantamount to gambling. Investors should care more about diversification. Sadly many are content to pile 100% of their capital into dead-money real estate.

By: Charles D Flynn

Charles D Flynn — Mon, 28 Feb 2022 18:27:14 +0000

I am afraid it is not the lack of “fear” of higher rates that are driving the market, it is the fact that they can only qualify with the lower rates at present. It is the reality of the moment, just like the BoC throwing caution to the wind on inflations, everyone is living in the bubble mentality. They simply cannot help themselves after being led to water by the lack of leadership of the Central bankers and Government ministers they are more than willing to drink the Kool-Aid.

By: Brandon

Brandon — Mon, 28 Feb 2022 17:02:55 +0000

In reply to Trevor. Fixed debt pre-payment penalties are based on the posted rate, not the discounted rate. It's so they can rip off homeowners who move within the fixed rate period.

By: Lou Chao

Lou Chao — Mon, 28 Feb 2022 16:55:14 +0000

Gov keeps low rates so they can “borrow so you don’t have to,” and ignores “high inflation means you’ll have to borrow as well”