Mortgage Basics

What Is A High-Ratio Mortgage?

What Is A High-Ratio Mortgage?
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  • nesto
| Jan 18, 2022
Reviewed, May 7, 2024
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    One of the main things to consider when getting a mortgage in Canada is whether you want a high-ratio or low-ratio mortgage. A high-ratio mortgage can significantly impact many factors in your home-buying journey, such as whether or not you’ll have to pay for mortgage insurance, how high your interest rates will be, and what your monthly repayments will look like. To make things easier, we’ve put together a quick guide with everything you need to know about high-ratio mortgages.


    Key Takeaways

    • A high-ratio mortgage means that your down payment is less than 20% of the total value of your new home, and the amount of money you borrow is more than 80%
    • A high-ratio mortgage may be right for you when you cannot afford or choose not to put down at least 20% of the total value of a new property
    • High-ratio mortgages require mortgage insurance, which will affect your monthly repayments since you’ll have to pay CMHC premiums

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    What is a high-ratio mortgage?

    Your mortgage ratio is the total down payment you put towards the value of your new home, compared to the amount of loan you will need for the remaining amount. If you’re planning on getting a mortgage, the size of your down payment will have a significant impact on your budget. How much money are you willing to pay upfront, and how much will you borrow? In Canada, if your down payment is less than 20% of the total value of your home, your mortgage is considered high-ratio.

    High-ratio vs low-ratio mortgage

    If you buy a home with more than 20% of the total cost covered by your down payment, this is considered a low-ratio mortgage. The more equity you are able to pay into the property, the lower your mortgage ratio will be.

    High-ratio mortgage example

    Let’s say you’re buying a $500,000 home, and you pay down 10% of that up front ($50,000). This means that you’ll need a loan for the remaining $450,000, which is 90% of the total cost to buy your new home. Your ‘loan to value’ (LTV) ratio here would be 9 to 10 (90%), which is considered a high ratio.

    Low-ratio mortgage example

    Now, let’s say you buy that same house for $500,000, but you put down 25% of the total cost upfront ($125,000). That means you only need a loan to cover $375,000. Your loan-to-value (LTV) ratio here would be 3 to 4, or 75%. This is an example of a low-ratio mortgage.

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    Is a high-ratio mortgage bad?

    Not necessarily. With Canada’s housing market predicted to heat up even more in 2022, getting a mortgage that suits you is important. But, a high-ratio mortgage does come with a few key implications:

    • First and foremost, you will need to pay for mortgage default insurance, otherwise known as CMHC insurance. This is federally mandated insurance for mortgages with down payments between 5% and 19.99% in Canada. Check out our CMHC calculator to see how much it could cost you.
    • Secondly, a high-ratio mortgage will affect the cost of your premiums. These will be added to your overall mortgage upfront, generally between 2 and 4 percent of your total money borrowed. Generally, the higher your LTV ratio, the higher your premiums will be. Use our mortgage calculator to understand how your mortgage ratio can affect your premiums.
    • Your interest rates could be affected. Generally, insured mortgages are less risky to your lender than uninsured ones since even if you default, they will receive a payout from the insurer. As a result, interest rates on insured mortgages may be lower. Ultimately, though, the cost of CMHC insurance will probably outweigh any savings you can make with a slightly lowered interest rate.
    • Your monthly repayment will be higher. An insured high-ratio mortgage will have a lower maximum amortization period. The maximum amortization period for insured mortgages is 25 years, whereas for non-insured mortgages, that figure goes up to 35 years. A shorter amortization period means you’ll pay a higher regular mortgage payment.
    • You cannot refinance a high-ratio mortgage. Most lenders will not refinance a mortgage with a loan-to-value ratio unless it is lower than 20%. However, there are some exceptions. If you need clarification on any aspect of refinancing an insured mortgage, speak with a nesto professional today.

    Frequently Asked Questions:

    Will I need mortgage default insurance for a high-ratio mortgage?

    Yes. Any mortgage with a down payment of less than 20% is required by Canadian law to be insured.

    When to get a high-ratio mortgage?

    A high-ratio mortgage is necessary when you don’t put down at least 20% of the overall value of your new home. If you can manage higher monthly repayments, it may be a better fit to go with a down payment of less than 20% – provided the cost of your home is less than a million dollars. Note that any home with a value above $1,000,000 is legally required to have a 20% down payment as a minimum.

    Conclusion

    A high-ratio mortgage is a viable way to fund your new home if you cannot, or choose not to put down over 20% of the total value up front. However, there are many benefits to securing a low-ratio mortgage. 

    If you are looking to improve your LTV ratio, here’s a few final tips:

    • Look for a house at the lower end of your budget. If your lender has already pre-approved you for a mortgage, it’s worth looking for a house where your down payment could go further and get you above the 20% equity threshold.
    • Pay a larger down payment. If your budget allows for more upfront payment, or if you can hold off buying a home and save for a larger down payment, you can lower your loan-to-value (LTV) ratio and potentially avoid having to pay CMHC premiums altogether.
    • Compare the best rates. At nesto, we provide the best rates available to you and offer direct lending. A high-ratio mortgage doesn’t mean you’ll get a bad rate. Being able to easily compare the best rates available will help you find a mortgage that suits you best.

    Need help finding the best mortgage for you? Get started now.

    Why choose nesto

    At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

    nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

    Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.


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