High Ratio Mortgage

With high rate mortgages, mortgage default insurance is a big part of the process. You should understand what it is and what it means to you. Mortgage loan insurance is an extra premium that you will pay. It is added to your routine mortgage payments. The cost of it ranges between 0.6 and 4.5% of the borrowed amount of the loan. If you stop paying on your mortgage, the lender may seek out the insurance provider to help cover the losses they suffer due to the default on the loan. That does not mean you are off the hook and that debt can follow you. There are rules on whether a person can obtain an insured mortgage. In order to obtain mortgage insurance, the provider will require that you meet specific rules.Home price The purchase price of the home must be under $1 million. Most insurance companies will not insure homes that are valued at over this dollar amount. That means, if you plan to buy a $1 million or more home, you need to have 20% down. Self-funded down payments Another requirement is that the mortgage down payment must be selffunded. That means you will need to save for the down payment on your home purchase provide. You may be able to receive some or all of that money as a gift from your family though. You cannot borrow the money for your down payment from anyone else. Amortization period The mortgage term must have a maximum amortization period of 25 years. That means that you will need to pay off the loan in 25 years. Therefore, if you want to have more time to pay off your loan, you will need to apply for and qualify for a conventional mortgage. Some lenders will offer conventional mortgages that have a mortgage term of up to 35 years. These are not available, typically, on insured mortgages. Mortgage default insurance, or CMHC insurance, is a federal requirement that most mortgage lenders must follow. If you do not have a high down payment, this rule helps to reduce the risk of a high rate of expensive foreclosures creating financial strain on lenders.

Not every borrower needs to have this type of mortgage premium. As noted, you need to have over 20% in a down payment to avoid it. However, to qualify, you also have to have a credit score that meets the lender’s requirements. In general, that is 680 or higher. If your credit history is not good, you may still qualify for a loan through some lenders. Also, the debt service ratio requirements are also in place. In short, your gross debt service (GDS) must be under 35%. In addition, a total debt service (TDS) ratio has to be under 42% in order to qualify for mortgage insurance.

High ratio mortgages may be one way for you to obtain a loan if you do not have a large down payment. It is nearly always advisable for home buyers to work to reach that 20% mortgage amount so that they can reduce this sometimes high cost. Your mortgage lender is not likely to do that for you, though, unless you have the down payment required. However, if you do qualify for a high ratio mortgage, but not a conventional mortgage, you could pay less in mortgage rates. Remember, these high ratio loans have insurance on them that helps reduce the risk to the lender. That means that lenders are likely to offer lower mortgage rates to you than if you were to purchase through a conventional loan. In some situations, that loan to value ratio could work in your favour then.

By contrast, a low ratio mortgage has a higher down payment. That means you are making more than a 20% down payment based on the purchase price. As a low ratio mortgage, it does not require mortgage loan insurance. As an uninsured mortgage, it is easier to obtain a mortgage loan. You may find mortgage rates are competitive, especially if you have a good credit score and a strong credit history. To get a low rate mortgage, though, you will have to have a larger down payment. Meeting that down payment requirement is difficult for some borrowers, though. If you look at your personal finance budget and you do not have the bigger down payment available to you, you can wait, and try to build up that down payment or you go with smaller down payments and pursue a high ratio mortgage loan. It’s hard to make that decision. That’s where working with a mortgage broker, and not just a mortgage lender, can help you. We can help you to consider where you stand including if you qualify for the Canada benchmark rate or not.

In some situations, it may be possible to purchase another lender for a high ratio mortgage outside of traditional lenders. If you do not want to pay CMHC insurance, or you cannot meet what the high ratio mortgages require, you may wish to pursue uninsured mortgages through other lenders. Private companies may be able to help by offering alternative options. This may include no insured mortgages. Because these lenders do not have to conform to the requirements of the Canada Mortgage and Housing Corporation, they may be able to offer more opportunities for you to get into a loan that is more flexible. However, there are often limitations to these loans as well. You may not have to pay CMHC premiums, but interest rates on these loans tend to be higher. You may need to show lenders that your monthly expenses clearly make it possible for you to maintain your monthly payments. Unlike a standard financial institution, you may have a high payment or you may pay more interest in the long term. Still, it is worth comparing rates and terms to see if this type of loan works for your needs.