A high ratio mortgage is an option for home buyers who have less than a 20 per cent down payment on a house.
A high ratio mortgage must be insured, called mortgage default insurance. It is sometimes confused with creditor mortgage life insurance.
Mortgage life insurance provides insurance protection for the mortgage holder in the event of their death and protects the lender should the homeowner be unable to continue their payments.
The insurance also provides the lender with the flexibility to offer high ratio qualifiers the same competitive rates available to home buyers with a larger down payment.
The mortgage insurance premiums range from 1.75 to 2.75 per cent of the mortgage amount based on down payment.
These mortgage premiums are paid once and are added to the principal balance of the mortgage, amortized over the life of the mortgage.
For example, for a $400,000 home with a five per cent down payment, the mortgage would be $380,000.
The insurance premium at 2.75 per cent, $10,450, would be added to the mortgage raising it to $390,450.
In the same instance, a 15 per cent down payment would reduce the insurance premium to$7,000.
To refinance a mortgage at any point provided the mortgage with the refinance is still high ratio, the insurance premium adjustment only relates to the amount the mortgage is being increased.
For mortgage default insurance, there are currently three main mortgage insurance providers in Canada—Genworth Financial Canada, Canada Mortgage and Housing Corporation.
While all three basically have the same high ratio mortgae insurance guidelines, there are some differences.
The choice as to which insurer carrier is used is up to the discretion of the lender.
The high ratio mortgage initiative has helped thousands of families stay in their home when faced with financial hardship that otherweise might have put their mortgages at risk.
It is to the lender’s benefit to try and work with mortgage holders to find payment solutions when financial hardships occur, rather than to start a foreclosure proceeding.