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| Insured ? | 80% LTV ? The rates in this column apply to mortgage amounts between 65.01% and 80% of the property value. The home must be owner-occupied and have an amortization of 25 years or less. You must have purchased it for less than $1 million. These rates are not available on refinances. Refinances require "Uninsured" rates. | 65% LTV ? The rates in this column apply to mortgage amounts that are 65% of the property value or less. The home must be owner-occupied and have an amortization of 25 years or less. You must have purchased it for less than $1 million. These rates are not available on refinances. Refinances require "Uninsured" rates. | Uninsured ? | Bank Rate ? | ||
|---|---|---|---|---|---|---|
Insured 6.44% | 80% LTV 5.29% | 65% LTV 5.29% | Uninsured 7.35% | 6.59% | ||
Insured 5.54% | 80% LTV 5.59% | 65% LTV 5.59% | Uninsured 5.84% | 6.19% | ||
Insured 4.79% | 80% LTV 4.79% | 65% LTV 4.79% | Uninsured 4.99% | 5.29% | ||
Insured 4.74% | 80% LTV 4.84% | 65% LTV 4.84% | Uninsured 4.89% | 5.19% | ||
Insured 4.44% | 80% LTV 4.64% | 65% LTV 4.44% | Uninsured 4.44% | 4.84% | ||
Insured 4.89% | 80% LTV 5.29% | 65% LTV 5.29% | Uninsured 5.89% | 5.9% | ||
Insured 5.69% | 80% LTV 5.84% | 65% LTV 5.84% | Uninsured 6.09% | 7.25% | ||
Insured 5.75% | 80% LTV 6.15% | 65% LTV 6.05% | Uninsured 6.05% | 8.35% | ||
Insured 5.65% | 80% LTV 5.8% | 65% LTV 5.7% | Uninsured 5.7% | 6.19% | ||
Insured N/A | 80% LTV N/A | 65% LTV N/A | Uninsured N/A | N/A | ||
Insured 5.25% | 80% LTV 5.25% | 65% LTV 5.25% | Uninsured 5.25% | N/A |
In Canada, mortgages secured with a down payment of less than 20% of a home's selling price are classified as high-ratio. The minimum down payment on a property in Canada is 5%, but only if the selling price is below a certain threshold. Your down payment is a portion of the home's total value, so increasing your down payment lowers the gap between what you put down and what you owe. The gap is represented by a metric called the loan-to-value ratio (LTV). Conversely, by decreasing your down payment, you increase your LTV.
In Canada, borrowers wishing to purchase a home where they put down less than 20% must take out mortgage insurance that protects the lender from default. Canada's minimum required down payment is 5% for homes under $500,000. If you make a 5% down payment, you will have the maximum allowed LTV ratio of 95%. When you’re in the process of obtaining a new mortgage, the most common amortization period offered to high-ratio borrowers is 25 years. Extended amortization periods of 30 years are rare and are more likely to be secured by borrowers with low-ratio mortgages.
A loan-to-value ratio (LTV) compares the price of the collateral (i.e. the house you want to purchase) with the value of the loan you request. It helps the lender know if you can secure financing, how much you can receive and what interest rate they should charge you. If your LTV is higher than 80%, then it is considered a high-ratio mortgage. When applying for a mortgage, your lender will consider the mortgage's estimated LTV. The higher the LTV, the more scrutiny your application will face. For example, your mortgage lender will want to ensure you can still pay your other bills. High-ratio borrowers must show that expenses like mortgage payments, property taxes, heating costs, and condo fees will be at most 32% of their gross annual income. You can lower the LTV of your mortgage by increasing the size of your down payment or looking for a cheaper home to buy.
To qualify for a high-ratio mortgage, you must pay mortgage insurance, a type of insurance premium charged as a percentage of your borrowing amount. Only home purchases of $1 million or less are eligible for insurance.
High-ratio mortgages, by their very nature, pose extra risks for the lending institution. Because you are putting a less than 25% down payment on the purchase of a home, the insurance will protect the lender against mortgage default. At the same time, it allows you to enter the housing market and buy a home with as low as a 5% down payment.
The Canada Mortgage Housing Corporation (CMHC) is a Crown corporation, meaning it’s backed by the federal government. It is a leading provider of mortgage insurance, but not the only one. Homebuyers can purchase insurance from Sagen and Canada Guaranty.
Below are the main differences between high and low-ratio mortgages.
Down payments are smaller
When purchasing a home in Canada, homebuyers must provide a portion of the total value of a property upfront — this is more commonly known as a down payment. Conventional, or low-ratio, mortgages are secured with at least 20% down on the home's value, while a high-ratio mortgage is a mortgage loan higher than 80% of the property's lending value.
You're priced out of some options
You can only purchase a home worth at least $500,000 if you plan to put only 5% down. For homes worth $500,000 to $999,999, you must put down 5% of the first $500,000 and 10% of the remaining purchase price. Homebuyers who can put 20% down are free of such limitations.
Mortgage insurance is mandatory
When acquiring a high-ratio mortgage, a borrower must also have insurance, which can only be used for houses costing $1 million or less. Because they are insured, high-ratio mortgages are often cheaper than low-ratio mortgages. However, you are responsible for paying the premium, not your lender.
While your lender will take out a CMHC insurance policy for high-ratio borrowers. Premiums usually range from 0.6% to 4% of your total loan. The higher your loan-to-value ratio is, the higher your rate will be. It can be paid as a lump sum or added to your monthly mortgage payment.
More fees apply
Also, a one-time fee of between 0.05% and 3.25% of your mortgage is added to high-ratio mortgage contracts. You can have it blended into your mortgage payments or pay it upfront upon closing.
Shorter amortization periods
On a high-ratio mortgage, the maximum amortization period is 25 years. In contrast, low-ratio borrowers can amortize their loans over 30 years. The amortization period refers to how long it will take to pay off the outstanding loan balance.
Deciding which kind of mortgage you need is a challenging task. Because you are borrowing a considerable sum of money on your most valuable asset, you need to understand the pros and cons of each type of a high ratio mortgage.
Pros of a high ratio mortgage:
High-ratio mortgages allow people with little down payment savings to enter the housing market. People can use the required mortgage insurance to replace a larger down payment. A down payment as low as 5% of the purchase price can still get you an interest rate comparable to or even lower than people putting down 20%.
The lender also faces less risk as the loan is insured and protected from default.
Cons of a high ratio mortgage:
You are borrowing more money compared to a low-ratio mortgage. You will generally pay more in the long run, even with lower interest rates. There is a limit on amortization periods for a high-ratio mortgage. With high-ratio mortgages, the amortization periods have a maximum of 25 years, compared to 35 years for a conventional mortgage.
There are also restrictions on how much you can spend on a home. Finding suitable digs for $1 million or less in a hot housing market can be difficult.
Yes. All homeowners in Canada with a high ratio mortgage require mortgage insurance. It is commonly called CMHC insurance (since the Canadian Mortgage and Housing Corporation offers it), though other mortgage insurance providers are in the market. The rate you receive on your mortgage insurance will also depend on the loan-to-value ratio of your mortgage. The chart below indicates how much you’ll pay in mortgage insurance on a $500,000 home, depending on the size of your down payment.
| Home value | Down payment | Amortization period | Mortgage insurance |
|---|---|---|---|
| $500,000 | 5% or $25,000 | 25 years | $19,000 |
| $500,000 | 10% or $50,000 | 25 years | $13,950 |
| $500,000 | 15% or $75,000 | 25 years | $11,900 |
| $500,000 | 20% or $100,000 | 25 years | $0 |
Ahigh-ratio mortgage must have mortgage default insurance. Here are the requirements you must meet to get insurance.
The minimum down payment on a high-ratio mortgage is 5% of the home's value. Homes worth up to $500,000 require a down payment of at least 5%, while homes worth between $500,000 and $999,999 require a down payment of 5% on the first $500,000 and 10% of the rest. Homes worth more than $1,000,000 are not eligible for mortgage insurance. If you put down the minimum amount on a home, you automatically enter a high-ratio mortgage. For conventional mortgages, the minimum down payment in Canada is 20%.
While it’s true that high-ratio mortgages often come with slightly lower interest rates because they’re insured, this doesn’t mean it’s easy to find a great rate.
However, there are a number of factors lenders will take into account when considering your mortgage application, such as your credit score, your debt ratios, and your income. We recommend focusing on these factors to improve your chances of getting a great rate.
Improve your credit score: The minimum credit score to qualify for a high-ratio mortgage is 680 in Canada. In general, your lender will look at your credit score when determining your rate, as your score is usually indicative of your ability to make payments on time and manage your debts. The best way to improve your score is to make loan and credit payments on time and in full.
Improve your debt ratios: Lenders will also determine whether you have a reliable income stream and whether that income is high enough to qualify for your new mortgage loan. In addition, lenders will also look at your Gross Debt Services (GDS) and Total Debt Services (TDS) ratios to determine whether you can handle your payments. As per the guidelines from the Canadian Mortgage and Housing Corporation (CMHC), your GDS ratio should not exceed 39% of your gross annual income. Furthermore, your TDS ratio should not exceed 44%.
Compare the market: Finally, the best thing you can do to ensure you’re getting a competitive rate is to compare the market. Price comparison websites are becoming an increasingly popular way for homebuyers to hunt for great rates. LowestRates.ca compares mortgage rates from 50+ of the top banks and brokers in Canada.
Yes. With the LowestRates.ca Mortgage Payment Calculator, you can see exactly how much you’ll be required to pay in mortgage payments depending on how much you put down. This calculation will also include mortgage insurance.
First, let’s review what a second mortgage and mortgage refinance are.
To refinance means replacing your current mortgage with a new one at different terms. Most of the time, it's not possible to refinance a high-ratio mortgage.
Second mortgages are loans that use your home as collateral. You can borrow up to 80% of its appraised value minus the balance on your first mortgage. Most lenders do not extend second mortgages or home equity lines of credit (HELOC) to high-ratio borrowers. To qualify for either product, you must own at least 20% equity in your home.
Five-year government bond yields typically drive high-ratio mortgage rates, so the differences between rates from one province to the next won't be significant. However, you might notice slight variations in rates because rates are set differently from one lender to another, and they may set rates based on how much competition they have. Lenders sometimes charge higher rates in markets they monopolize.
Joel Kranc
About the Author
Joel Kranc is an award-winning writer, author and journalist. Most of his experience lies within the institutional investment and financial services space. He also covers a variety of business topics for publications in North America and the UK.
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*Based on the difference between estimated deep-discount 5-year fixed rates from Canada's top six banks and the lowest comparable rates on LowestRates.ca, as of January 14, 2022.