7. What is the difference between a high-ratio mortgage and a conventional mortgage?

As demonstrated in the example just above, a High-Ratio mortgage is one where the amount borrowed is greater than 75% of the purchase price, or the appraised value, whichever is less in the case of a purchase. Again, High-Ratio mortgages generally require mortgage loan insurance provided through Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial, unless a borrower’s mortgage is placed through a lender who self-insures their portfolio. Self-insured mortgage lenders are normally used in the case that a client requires financing under a sub-prime program and does not qualify for insurance through either CMHC or Genworth Financial. (Click here to contact one of our Mortgage Edge Consultants for further information on self-insured mortgage lenders).

The Mortgage Loan Insurance premium is paid to CMHC or Genworth Financial and protects the Lender in the event the mortgage is not repaid and the bank has to take back the property. The benefit to the borrower is that it allows them to purchase a home with less than 25% down payment. The insurance premium is paid by the borrower and can be added directly onto the mortgage.

As previously mentioned, mortgage loan insurance premiums range from .50% to 7.30% of the mortgage amount, (see High-Ratio Mortgage Insurance Premiums) and are calculated based on the overall loan to value and the type of product selected. For example, borrowers with a 5% down payment, or a loan to value of 95%, would pay a premium of 2.75% while those with a 20% down payment, or a loan to value of 80%, would pay an insurance premium of 1.00%. Self-employed borrowers unable to prove their income could be subject to a premium of up to 7.30%. There are ways to avoid the expensive premium for the self-employed who cannot confirm income. (Click here to contact a Mortgage Edge Consultant for more details).

A conventional mortgage is usually one where the down payment for a purchase of a home or the equity in an existing home owner’s home is equal to 25% or more of the purchase price or value. In this case, a mortgage loan does not normally require mortgage loan insurance. There are cases however with a conventional mortgage, where a lender would require mortgage loan insurance as an exception mainly due to the property condition or property type.