Previously, and up to November 30, 2016, buyers who put down more than 20% of their home price and owners who have more than 20% equity in their homes were considered “low-ratio” borrowers. They could enjoy “low-ratio” mortgage insurance at a much better rate due to the fact that their loans were less “risky”. However, starting on November 30, 2016 a big chunk “low-ratio” borrowers will not qualify for this plan anymore.
Buyers will not qualify for “low-ratio” insurance if one of the following applies:
- amortization period is longer than 25 years
- home’s purchase price is over $ 1 million
- buyer has a credit score below 600
- property is not owner occupied
- if you are a self-employed individual applying for a stated income deal
What to expect?
In other words, when this huge segment of properties becomes ineligible for low-ratio insurance, lenders will have to pay higher insurance premiums, which will get passed down to borrowers in terms of higher interest rates on mortgages. In fact, this is already happening. Multiple key mortgage rates climbed higher since Wednesday, and are expected to continue rising, especially after new rules come into play. Keep in mind that when rates rise it will become very difficult to refinance in a constrained market.