As those in the mortgage business are painfully aware, Department of Finance rule changes have made low-ratio mortgage insurance far more expensive—well over 200% more expensive in some cases. For mortgage finance companies who rely on insurance for securitization, that’s a serious problem.
One of the more inventive solutions to this problem comes from MCAP, with its new “MCAP 79” mortgage. The product, which launched last week, comes with an eye-catchingly low 5-year fixed rate (as low as 2.29% at 65% LTV). There’s also a 1% fee, which can be capitalized into the mortgage. MCAP uses the 1% upfront fee to offset its insurance and capital costs.
The product has all of MCAP’s bells and whistles—i.e., 20% prepayment privileges, portability, a fair prepayment charge and a 120-day rate hold. It’s available on insurable owner-occupied purchases with LTVs up to 79%. The primary applicant needs a 720+ credit score and the maximum property value is $1 million.
Will Consumers Bite?
Triple-A quality borrowers aren’t used to paying a fee, regardless of how low a rate is. In this case, they’ll obviously want to know the total borrowing cost of MCAP’s 79 mortgage versus competing products.
We ran the numbers, and given:
- a 65% LTV
- equal payments, and
- a mortgage held to maturity
…the effective rate of the MCAP 79 beats virtually all competing rates above 2.52%.
Assuming the mortgage is not broken early, the MCAP 79 is currently the best low-ratio 5-year deal from any broker lender. Albeit, breaking the mortgage early can change that because the 1% fee is non-refundable and there’s a $300 to $500 reinvestment charge in the first three years.
Time will tell how MCAP 79 performs in the marketplace. But whether it’s a hit or not, MCAP’s product team deserves a gold star for creativity.
If it retains its cost advantage, and if brokers can get clients past the fee and sell the overall borrowing cost advantage, the product could see some success.