Conventional vs. High-Ratio Mortgages

Low ratios and high ratios refer to the percentage of the purchase price that the mortgage covers. The higher the down payment, the lower the mortgage ratio is. A conventional (or low-ratio mortgage) is usually below 80% of the purchase price while a high-ratio mortgage is usually over 80% of the purchase price.

How much money do you have for a down payment? The type of mortgage for which you apply depends on the size of the down payment in relation to the purchase price. It also depends on whether or not your financial institution will approve a conventional mortgage. Canadians wanting to refinance are limited to borrowing a maximum of 80% of the value of their homes.

CMHC Insurance

The Canada Mortgage and Housing Corporation (CMHC) can insure your mortgage when you can’t afford the 20% down payment. The maximum amortization period is set at 25 years and homeowners must have at least a 5% down payment. Non-owner occupied properties require a minimum 20% down payment.

The CMHC doesn’t lend money; however, CMHC mortgage loan insurance can enable you to finance up to 95% of the purchase price of a house valued under $500,000, (decreasing to 90%, if the property is valued over $500,000), providing you find a lending institution to finance it. Mortgage loan insurance is only available for properties valued at less than $1,000,000 or for which the renovation value is less than $1,000,000. You must find a bank, trust or mortgage company to finance the mortgage. These institutions will provide you with funding for a high-ratio mortgage, if you don’t have CMHC mortgage insurance.

CMHC insurance is not free and, therefore, it can add significantly to the cost of your mortgage. There is also an application fee for this insurance. The larger your down payment, the less CMHC insurance will cost you. See the CMHC website for a summary of the current insurance rates.

The CMHC insurance premium is a percentage of the amount of your mortgage. This amount is added to your mortgage and paid back with interest over the length of the amortization period. Alternatively, you have the option to pay your premium in full when the mortgage is taken out.