Who enjoys the Lowest Mortgage Rates, High Ratio Borrowers or Conventional Borrowers?

2017 sees a boom in real estate market. As the bank go lax on interest rates to promote spending, there’s never been a better time to step into your dream home. But one must know what they’re about to deal with before buying a mortgage for a property.

Mortgage Division, a firm that provides the lowest mortgage rates in Mississauga, maintains transparency on how your down payment schedule ACTUALLY affects your savings and the mortgage rates you’ll actually be getting. 

     

Now there’s been a lot of speculation regarding what’s better in terms of down payment. Is it good to pay a down payment that’s more than 20% of the purchase price of the property or to put than less than 20%? That’s the difference between high-ratio borrowers and conventional borrowers.

High ratio borrowers are the ones who make a down payment of less than 20% and conventional borrowers are the ones who pay more than 20% as down payment.

Now typically, it’s considered that high ratio borrowers benefit from making a lesser down payment as compared to conventional borrowers as they save on the monthly interests they have to pay. On a mortgage rate of fixed five year term, on the same amount, the individual making a larger down payment ends up paying more as monthly interest as compared to the one who pays less initially.

So high ratio borrowers save more, right? Not always and not necessarily. We must all remember that there are no free lunches. High ratio borrowers pay an extra default insurance that insures the lender for any loss that may occur if the borrower is unable to pay the mortgage.

So, whatever a high ratio borrower saves on monthly interest payment, it spends on default insurance payments. That evens it out.

Therefore, before jumping on to a mortgage plan, gather information about the long term prospects of the mortgage plan you’re opting for. Know all the pros and cons and don’t just fall for a low down payment, low interest policy as you may actually end up paying more in the long run.

For sound financial assistance and lowest mortgage rates, consult Mortgage Division, the leading mortgage firm in Mississauga.