What is a High-Ratio Mortgage In Canada?
A high-ratio mortgage applies to people that have less than 20% of a down payment to put towards the purchase of a home. In these cases, you must qualify for mortgage insurance through one of three insurers – Genworth, CMHC or Canada Guaranty
You can qualify for up to 95% of your home’s value based on the following criteria:
- Employment
- Credit score
- Amortization (25 years)
How to calculate your minimum down payment?
Typically a minimum down payment is starting at 5%. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000 and under $1,000,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
- Example: If your purchase price is $750,000, the minimum down payment is
- 5% * $500,000 = $25,000; 10% * ($750,000 – $500,000) = $25,000; And the total downpayment is $25,000 + $25,000 = $50,000.
The cost of the insurance premium (a fee) is incorporated into your mortgage payments and varies based on your down payment:
- With a down payment of 5% – 9.99% your premium is 4.50% of your mortgage amount
- With a down payment of 10% – 14.99% – your premium is 3.10% of your mortgage amount
- With a down payment of 15% – 19.99% – your premium is 2.80% of your mortgage amount
- The insurance premium is also subject to PST and must be paid at time of closing
How does this benefit consumers?
- First time home buyers are the more typical consumer that fall into the “High Ratio Mortgage” category.
High-Ratio mortgages allow first-time home buyers the opportunity to own a home assuming they have good credit and steady income; but do not have a big down payment available.
