Some mono-lines may in fact be chasing rental business to the banks by attaching premiums to both the borrower’s interest rate and insurance costs, argues one broker focused on that end of the market.
“In general, if you have a client that can be approved by both a major bank and a mono-line lender for an investment property, it certainly doesn't make sense to have the client pay a premium on the rate or pay an insurance premium with the mono-line lender,” Dave Butler of Verico Butler Mortgages, told MortgageBrokerNews.ca. “I use monoline lenders all the time -- they are very important to our industry. But if I am comparing apples to apples for a client that can be approved by both types of lenders, it is a no brainer to get your client a better overall package and that is present with a major bank such as National Bank or Scotia.”
That’s increasingly the case after several mono-lines signalled their intentions earlier this year to back away from the rental market. The move, made in tandem with their retreat from BFS programs, has actually benefited banks, which continue to take those deals and keep them on their books.
The mono-line move to severely curtail their own rental product is the direct result of the CMHC’s decision to ration access to bulk insurance. The decision means that they can’t securitize those loans.
Make no mistake, suggested Butler, banks have been the most obvious beneficiaries even as they too apply more conservative guidelines to that lending, especially around condo investments.
“Even with the latest changes to Scotia's pricing on rental properties, adding 0.20 per cent to their fixed rate and variable rate,” said Butler. “The rate still ends up being better than those offered by mono-line lenders who incorporate the insurance premium into the rate.
"For those Monoline lenders that give their lowest rate on rentals but charge an insurance premium to the client instead of pricing it in the rate, the premium paid by the client ends up adding to more than the savings that was had in the lower rate compared to the major bank.”