A Canadian Insured Mortgage Verus A Sub Prime Mortgage
Depending on who you’re talking to, the answer is typically nothing.
By definition, an insured mortgage provides protection to a mortgage lender to extend mortgage financing to individuals carrying a level of risk that would not allow them to secure a mortgage without insurance.
Based on the above, an insured mortgage is also a sub prime mortgage.
So, yes we do have an active sub prime market in Canada administered by the Canada Mortgage and Housing Corporation (CMHC). Insured mortgages allow many Canadians to own a home much faster, which stimulates both the building and real estate markets.
And despite what you may have been hearing about the sub prime market collapse south of the border, the Canadian insured mortgage market continues to operate in Canada and is expected to do so into the foreseeable.
Because of the shear size of the market, it needs to be watched closely to make sure the portfolio stays healthy and program adjustments take place if the overall risk level becomes unhealthy for the country as a whole.
And while insured mortgage programs have their supporters and detractors related to their overall impact and risk to the overall economy, they do exist and provide tremendous value to the individual consumer who would not be able to own a home without an insured loan.
Because they are sub prime in nature, there is a higher rate of default, and that default risk is basically carried by the Canadian taxpayer to a large extent. This is the trade off that goes with greater access to credit. Many would argue that the CMHC programs have been a resounding success, and, properly managed, should continue to provide the same opportunities for home ownership to all Canadians.
The key to keeping what many would consider a highly valuable tool viable for future generations is strong economic policy and whatever program adjustments may be required from time to time to avoid the slippery slope our neighbors to the south got on and are still trying to recover from.
If you’re interested in learning more about insured mortgages, I suggest you give me a call and I’ll do my best to get all your questions answered.