What are high-ratio mortgages? High-ratio mortgages are essentially those mortgages in which the borrower makes a down payment below 20 percent. There are some other characteristics of high-ratio mortgages - one being that they need CMHC insurance. This also means that the price of the home can only be $1 million or less in order to get the CMHC insurance. Since high-ratio mortgages are insured, they do have the advantage of lower mortgage rates as compared to traditional mortgage rates. What does it entail? If you are applying for a high-ratio mortgage, you can make a very small down payment which can go as low as 5 percent. It is a mortgage for above 80% of the home value. So if you make a down payment of 10 %, your mortgage is 90% of the home value and hence a high-ratio mortgage. This 90% is also known as the Loan-to-Value Ratio. But if you get a traditional mortgage, also known as a low-ratio mortgage, the some you can borrow is less than 80% of your home value. For a low-ratio mortgage, a down payment of 20% or more is non-negotiable. So basically, if you are getting a high-ratio mortgage, it implies you are borrowing a lot more money in comparison to a low-ratio mortgage. It also means these mortgages are risky for the lender and hence mortgage loan insurance is required. The mortgage amortization period for a high-ratio mortgage cannot exceed a maximum of 25 years. But if you think you would need a mortgage amortization period that is longer than that then you would need to apply for a traditional mortgage. The benefit of the latter is, that you have more time to pay up the mortgage in smaller amounts. The disadvantage of such a situation is that you will end up paying a lot more interest during the lifespan of the amount you borrow. Are high-ratio mortgages a wise choice? Taking a mortgage is a decision for a lifetime. So whether or not a high-ratio mortgage is a wise choice needs to be thoroughly considered. There is no right answer to this question. Rather, one should evaluate their situation around a variety of factors and arrive at a decision. You would need to take into account things such as the market conditions if you would be able to save a lot and the kind of home you want to buy. If the home prices are on the rise as a trend, you make consider taking a high-ratio mortgage before the prices get even higher. Your income is another big consideration while making a choice. High-ratio mortgages may seem cheaper on the face, but you will end up paying higher mortgage payments. If you have a good disposable income, you may consider high-ratio mortgages. So overall, it really depends on the situation of the borrower. You may consult with a mortgage broker who may study your case and help you decide which choice is better for you. If you want to explore more about high-ratio mortgages or have any questions or doubts about them, write to us at LendX Financial in Brampton, Greater Toronto Area.
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