What is a High Ratio Mortgage?

Wondering what a high ratio mortgage is? Discover how it works, its benefits, and key considerations when buying a home with a smaller down payment.

Key Takeaways

• A high ratio mortgage applies when your down payment is less than 20% of the home’s value.

• Requires mortgage default insurance (often CMHC insurance).

• Allows homebuyers to enter the market sooner with a lower initial investment.

• Use our mortgage calculator to estimate your potential monthly payments and affordability.

Understanding High Ratio Mortgages

A high ratio mortgage is simply a mortgage where you have a down payment of less than 20% of the purchase price of your home. Because lenders view smaller down payments as riskier, you'll need mortgage default insurance to secure your loan.

What is Mortgage Default Insurance?

Mortgage default insurance protects your lender in case you're unable to make your payments. In Canada, this insurance is typically provided by the Canada Mortgage and Housing Corporation (CMHC) or private insurers like Genworth and Canada Guaranty.

How Much Does Mortgage Default Insurance Cost?

The cost of mortgage default insurance depends on the size of your down payment. Usually, the premium ranges between 2.8% to 4.0% of your total mortgage amount. This fee can be added to your mortgage payments, making it manageable. Check it with our CMHC Mortgage Calculator today!

Pros and Cons of a High Ratio Mortgage

Pros:

• Buy Sooner: Allows homeownership without waiting years to save a large down payment.

• Competitive Rates: Often offers competitive interest rates due to insurance protection for lenders.

Cons:

• Additional Cost: You must pay for mortgage default insurance.

• Higher Payments: The smaller your down payment, the larger your mortgage and monthly payments.

Is a High Ratio Mortgage Right for You?

A high ratio mortgage could be ideal if you're eager to buy your first home but haven't saved 20% for a down payment. Consider your financial situation carefully and use our mortgage calculator to determine your affordability and monthly payments.

Try Our Mortgage Calculator

Use our handy mortgage calculator to see how different down payments affect your monthly mortgage costs and find the option that best suits your budget.

Final Thoughts

Understanding what a high ratio mortgage is can significantly impact your homebuying journey. It offers a practical way to achieve homeownership sooner, though it comes with added considerations like insurance and higher monthly payments.

Considering buying a home soon?

As local real estate experts, we're here to guide you through the entire process. Reach out to us today or call (416) GET-ALDO—we'd love to help you secure your dream home!