When a client purchases a property with less than 20% down payment, default insurance is *mandatory*, so the client will always pay that insurance, through CMHC/Genworth/Canada Guaranty. So it means that the lender does not incur any costs to have that mortgage insured. On the other hand, when you have 20% or more, as several lenders want to obtain a similar type of insurance, often referred to as bulk insurance, this insurance cost falls on the lender, since they are the ones choosing to have the mortgage insured. Up until some 2-3 years ago, the cost of bulk insurance was fairly low and most lenders would simply treat a deal at 80% LTV (Loan To Value) the same way as deal at 60% LTV. But recently, with the endless new mortgage rules that changed in the last 2 years, the cost of bulk insurance went up significantly, particularly in the higher LTV brackets. So, if the lender has a deal at 80% LTV, the cost of insuring that mortgage is MUCH higher than a deal at 75%, or 70%, 65% LTV, etc. The result is that lenders will factor this cost in the calculation of what rates they can offer.
Imagine 4 brothers, all working for the same company, all with excellent credit, but different amounts for down payment, all getting a 5y fixed rate
John has 10% down payment - his mortgage must be insured, and that cost is his responsibility (as any insured mortgage). He would get 2.94%.
Michael has 20% down payment - at 80% LTV, the lender offers him 3.29%.
Anthony has 25% down payment - at 75% LTV, the lender offers him 3.19%.
Josh has 35% down payment - at 65% LTV, the lender offers him 2.99%.
All of these rates were influenced by the cost of having the mortgage insured. There are lenders that will not differentiate between a deal at 95% LTV or 50% LTV. Some will not offer a different rate at 75%, only at 80% or 65%. So, there are cases where lender ABC has the best rate, for a deal at 75%, while lender XYZ would have the best rate, at 80%.
Nowadays, with so many brokers with an online presence and posting the lowest rates they have available, the rate you see posted online may be completely irrelevant to you. My advice : Always talk to a mortgage professional to see what options are available to you.
FSCO # 10428 - Mortgage Intelligence