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Everything You Need To Know About High Ratio Mortgages

Everything You Need To Know About High Ratio Mortgages

posted in Mortgage News

When you’re searching for a mortgage in Canada, you’ll find they’re either high-ratio, or low-ratio, and it’s important to understand the difference between the two.

What are high ratio mortgages?

Down payments totalling less than 20% of the cost of the home you’re planning to buy, are high-ratio mortgages. The term refers to the ratio between the mortgage or loan amount, and the value of the property, which can also be referred to as the loan-to-value-ration.

What are low-ratio mortgages?

These are the opposite of high-ratio mortgages, involving down payments of more than 20% of the property purchase price.

What are the ramifications of having a high-ratio mortgage?

With these mortgages, you’ll be required by federal law to pay for mortgage default insurance, or CMHC insurance, which comes with its own set of consequences:

  • Premium prices – premiums must be paid upfront, at the beginning of your mortgage, and are added to the total mortgage amount. They are typically between 2 and 4% of the amount.
  • Amortization period – this period is the total amount of time that you have, to pay off your mortgage, and for insured mortgages, the maximum period will be 25 years.
  • Interest rate – as insured mortgages come with less of a risk for lenders, meaning that they can offer you a lower rate of interest. That said, the cost of the insurance usually totals more than the potential savings made on a mortgage with a lower interest rate.
  • Guidance for getting a high-ratio mortgage:

    The bigger the down payment you can make, the less likely you are to have to pay CMCH insurance premiums, and if you purchase a cheaper home, the down payment will make up a larger percentage of the total price, which again, could you take over the 20% threshold. It’s also important to carefully consider the mortgage rates available to you, even if you take out a high-ratio mortgage, and the best way of doing this is to work with a broker, who can compare all rates and get you the best deal for your circumstances.

    High ratio mortgages give first time buyers, or those with fewer assets, the opportunity to get their feet on the property ladder, and if you do end up taking out a high ratio mortgage, remember that you’ll have plenty of time to pay it off. However, working with a mortgage broker can help you get the right deal that takes your current and projected financial situation into full account.

     

    Mortgage News

    16 dJul, 2020

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