If we lived in a world where free market forces set prices we might expect a buyer with a larger down payment or a smaller mortgage to get a better rate. After all a lower loan/value and more of the borrower’s skin in the game reduces the risk for the lender.
Instead the mortgage market is highly distorted by the commission sales model and government insurance. Are you trying to save up the 20% down and keep your mortgage small? Well perversely you may have to pay a higher rate than your neighbour that bought a McMansion with 5% down.
For the banks, your neighbour’s government insured mortgage is about as safe as they can get, while your work to get out of the CMHC requirement means they need to shoulder the risk or pony up the CMHC insurance fees themselves (which makes their mortgage backed securities more attractive to investors). At the same time the broker tempted with the prospect of commission on a $800,000 house will be a lot more motivated to negotiate than that sensible $300,000 you’re borrowing. Robert McLister explains more in the G&M.
And also, a belated set of Monday stats thanks to Marko.
|Wk 1||Wk 2||Wk 3||Wk 4|
|Sales to New Listings||
|Months of Inventory||
Under 3000 inventory and almost 75% sales/list. Yikes it is getting tight out there.