What Is A High-Ratio Mortgage And Should You Get One?

With all of the many different types of mortgages in Canada, it’s no surprise why some people might get confused on which one to select. If you’re currently doing some research on mortgage options, you might have seen a conventional mortgage or high-ratio mortgage floating around the internet. What is a high-ratio mortgage? This question is bound to pop up in your mind at some point. It’s important to take a closer look at both of these mortgages so that you know what you’re getting into when it comes time to make your final selection

Conventional Mortgage Definition

What is a conventional mortgage? With a conventional mortgage, the down payment will typically be around 20% and the total of the loan will equal 80% of the entire purchase price of the property you’re wanting to buy.

For example: If you’re wanting to purchase a home that costs $100,000, then the down payment will be a minimum of $20,000. This would be a conventional mortgage.

If you need to borrow over 80% of the purchase price of the home, then that would be classified as a high-ratio mortgage. With high-ratio mortgage insurance, the value of the property usually has to be under $1,000,000.

For example: If the purchase price of the home is $100,000 and your down payment is $5,000, that would be classified as a high-ratio mortgage.

If you decide to go with a high-ratio mortgage, most people commonly go with the Canada Mortgage and Housing Corporation (CMHC), but there is also Genworth Financial Canada and Canada Guarantee, as well. For those trying to secure a mortgage without putting more than 20% equity down, you’ll typically have to get the insurance.

You’ll be paying a premium for these options for anything that’s over 80%. For up to 85%, you’ll be paying a 2.80% premium. For up to 90%, you’ll be paying a 3.10% premium. For up to 95%, you’ll be paying a 5% premium.

Even though mandatory mortgage insurance will cost people between 2.80% and 4% of the entire mortgage, it is still helpful because mortgage lenders now have the opportunity to give reduced mortgage rates.

If you’re looking into either of these types of mortgages, keep in mind that there is a stress test for them. For high-ratio mortgages, people have to qualify at the rate of 4.79%, which is the Bank of Canada benchmark.

If you have any questions surrounding the conventional mortgage or the high-ratio mortgage, it’s always good to write everything down and bring the list of questions to your mortgage lender. With so many different terms and factors involved in mortgages, it’s easy to get confused. Your mortgage lender is there to answer your questions and guide you in the right direction.


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