What is a high ratio mortgage?

Any home purchase where less than 20% down payment is made will require a high-ratio mortgage. If you are a first-time homebuyer then you can borrow up to 95% of the home value and only need to come up with a 5 percent down payment as a minimum. High-ratio mortgages insure the lender in case of mortgage default by the borrower. There are 3 mortgage default insurers in Canada of which the Canadian Mortgage & Housing Corporation (CMHC) is the largest. Although default insurance protects the lender, the lender passes the cost of the insurance premiums down to the borrower. The insurance premiums can be as high as 4% of the mortgage principal but are often not noticed by the borrower because the insurance premiums are usually tacked onto your mortgage payments for each period. Interest rates for a high ratio loan vary widely between lenders so it is best to use a licensed mortgage professional to explore the best options for you.

Mortgages with 20% or more down payment are referred to as conventional mortgages.