What Is A High Ratio Mortgage?
A high ratio mortgage is a mortgage where the borrower puts less than 20% down payment, and 35% down payment if they are self employed. A high ratio mortgage is often accompanied by mortgage default insurance, insured by CMHC Insurance, Genworth Insurance or Canada Guaranty Insurance. The insurance premium for a high ratio mortgage is determined by the down payment amount (less than 20% and 35%).
For high ratio mortgages, the default mortgage insurance premium is added on top of the initial amount, and the payment is one with the mortgage payment.
Benefit Of A High Ratio Mortgage
The benefit of a high ratio mortgage is that a home buyer can purchase a property with as little as 5% to 19.99% down payment.
Disadvantage Of A High Ratio Mortgage
The disadvantage of a high ratio mortgage is that the borrower will incur additional cost for insurance, which eats into the equity of their home. Also, for high ratio mortgages, the borrower(s) will pay the tax on the insurance premium amount, as part of their closing costs.