How did a 27-year-old kid How did that kid get a 3.39% mortgage while I’m paying an extra 0.45% a year?

I used to think paying down debt and having a good credit rating would reward me.

Then I went to renegotiate my mortgage and was told that my five-year fixed mortgage rate would be 3.84 per cent. I thought that was pretty good until the neighbour’s 27-year-old kid told me the rate on his mortgage was 3.39 per cent for the same term.

Wait. What?

How did that kid get such a great mortgage while I’m paying an extra 0.45 per cent a year?

The answer is that in 2018, he is a much better credit risk for the bank. This may not make sense on the surface, but let me explain how crazy our mortgage system has become. From the bank’s perspective, they would rather lend to someone who put down very little but had their loan guaranteed by the Canadian Mortgage and Housing Corporation (CMHC), than to someone borrowing $300,000 on a $1.5 million house with no insurance or guarantee on the payment of that mortgage.

Now, it is true that in order to qualify for the low mortgage rates you would have to pay a one-time insurance payment to CMHC or another Insurer. At the moment, this insurance cost is usually a little more than the mortgage rate benefit of getting a lower rate for a low down payment, although there have been times this year, when it was actually better to pay for the insurance and get a much cheaper mortgage.

Click here to view original web page at business.financialpost.com