Bad credit mortgage for the price of 'Bad' mortgage insurance in Canada? : Bad Credit Advisor

Bad credit mortgage for the price of 'Bad' mortgage insurance in Canada?

Mainstream lenders will be offering bad credit mortgages or sub-prime mortgages in Canada. The new sub prime mortgage products will be backed by mortgage insurance from Genworth Financial Canada.

Lenders will be offering lower rates to the self-employed and to the consumers with credit scores as low as 580. The catch is the mortgage insurance that can run anywhere "from 1.75 percent to 4.75 percent of the mortgage, depending on the size of the downpayment."

The number of bad credit mortgage lenders in Canada seems to be very limited, so this mortgage program does provide an alternative, but a good one? I don't know. According to the Genworth, "someone who puts down 10 per cent, borrows $200,000 and pays the highest premium rate would save about $6,000 over five years compared with what's currently available".
So I pay something like 2.5 to 3.5 percent at the time of closing which is $5,000 - $7,000 and then wait for 6 years to get it back. Makes no sense to me, and I don't know what is available in great country of Canada in terms of mortgage, sub prime on not. I would only recommend my Canadian readers check if this mortgage insurance will be tax deductible and take this into account. But then hell, how do I know if mortgage interest is tax deductible in Canada, probably not for all I know - just kidding here.

Now, let see how the numbers work - is that really worth it? $6,000 over five years mean $1,200 a year, $100 a month in savings. I assumed 6 percent interest amortized over 30 year for $200,000 mortgage - the monthly payment is $1,199.10. I added the saved $100 - $1,199.10 + $100 = $1,299.10. Then I did reverse recalculation and I got interest rate of 6.75 percent.

So in order to save $100 a month you must pay at the highest premium rate - $200,000 x .0475 = $9,500. That is $9,500 upfront on the closing. Somehow it doesn't make sense to me. Then I am not Canadian.

For self employed there is new Credit Assist mortgage insurance with the lowest credit score of 660. The self employed consumer who would put 10 percent down, can expect to pay mortgage premium "up to 5 per cent of the mortgage amount". How much exactly will depend on income, assets and so on - standard debt to income ratio and credit rating numbers, again whatever is standard in Canada

Hm, isn't better to put 15 percent down instead of paying 5 to some mortgage insurance company? But let me see again, someone trying to buy $300,000 house will have to pay $15,000 in mortgage insurance upfront, again - can you deduct those $15,000 or not is the million dollar question. Even in Canadian dollars it is a millions dollar question.
If I were self employed in Canada, I'd buy a house just south of the border, to tell you the truth. With really bad credit, what mortgage if any, a self employed consumer can get Canada?

Note, this is written according to "Lenders eye off-prime market" in Toronto Star, read it if you're inclined, and see if I read the story correct and made any sense here.

Visit the Genworth Canada website which is available both, in English and En Français. You can find all you need about mortgage insurance and assurance hypothèque.

And in case you are wondering, Genworth is US based.

Thu Mar 9, 2006 12:03PM by Tony | More in Debt Relief |

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