High Ratio Mortgage
A high ratio mortgage is a mortgage where the borrower’s downpayment is at least 5% and less than 20% on the purchase price of a home and the lender lends 80% of the value of the home.
High ratio mortgages has to be insured by one of Canada’s three default mortgage insurers and protect the mortgage lender in the unlikely event that the borrower defaults on the mortgage.
Most first time home buyers enter the market with less than 20% down and the mortgages are considered riskier so by law they must be insured.
The insurance premium can be paid up front by the borrower or can be added to the mortgage and amortized over the life of the mortgage.
The rate of a high ratio mortgage rate is lower than that of a conventional mortgage but the true cost of the mortgage is in the fees associated with high ratio or conventional mortgages. The high ratio cost is more when you calculate the insurance fee.