Uninsured mortgages are a popular option for homebuyers with a down payment of at least 20% that do not require mortgage insurance. This means the lender is taking on the full risk of the mortgage without the protection of insurance in case the borrower defaults. The philosophy behind uninsured mortgages is a balance between risk and reward.
On one hand, uninsured mortgages allow borrowers to avoid the cost of mortgage default insurance. Additionally, by having a larger down payment, borrowers may be able to secure a lower interest rate on their mortgage. This option is great for those with the financial means to put down a significant down payment.
Putting down 20% or more on your mortgage avoids mortgage default insurance costs, and PST on that premium payable at the lawyers. However, it could also increase your rate.
Yes. More down does not necessarily mean you are getting a better rate.
“It is the world of insurance and an insured mortgage takes the plate when it comes to rate.”
Duncan Wilson Mortgage Broker
Uninsured mortgages come with a higher level of risk for lenders, as they are fully resonsible for the mortgage. As a result, borrowers may need to provide extensive documentation to prove their ability to make their mortgage payments. Additionally, if the borrower defaults on the mortgage, the lender will be responsible for any losses, which can be a significant financial burden.
Uninsured v.s Insurable
In some situations, a 20% down payment can result in an insurable mortgage. And in most cases, the rate is not as high as an uninsured mortgage.
A low credit score may also prevent you from obtaining insurance or having your mortgage become insurable.
- If you refinance your home, you are in an uninsured mortgage. But don’t feel too bad! It’s the new rules and everyone generally has a higher rate when refinancing.
- Many uninsured mortgages tend to be B Lending mortgages. These are “stated income” or cash flow lending.
Ultimately, the decision to pursue an uninsured mortgage should be based on careful consideration of the risks and rewards and an understanding of the larger economic and social implications of the housing market. For more information, talk to a licensed mortgage broker/agent today. Find out how you can get the best rate and ensure you get on the right path to your mortgage approval.
