High-ratio Mortgage Rates in Canada

Your guide to high-ratio mortgages; buy a home with a down payment as low as 5%.

What is a high-ratio mortgage?

A high-ratio mortgage is a mortgage with a loan-to-value (LTV) ratio greater than 80%. This means the loan portion of a mortgage (what is owed) makes up more than 80% of the total mortgage value. The rest is made up by the down payment. To put it in even simpler terms, a home that is purchased with a down payment of less than 20% requires a high-ratio mortgage.

Let’s look at what a high-ratio mortgage looks like compared to a conventional mortgage, which is a mortgage with a down payment of at least 20% (more on that later).

Say you purchase a home that costs $400,000 and you have 10% to put down toward the purchase ($40,000). That would require a mortgage of $360,000 and have a loan-to-value ratio of 90%. However, if you were to put 20% down ($80,000), you would require a mortgage of $340,000 and have a loan-to-value ratio of 80%.

High-ratio mortgages account for just over 50% of all mortgages funded for first-time homebuyers, according to Mortgage Professionals Canada. Fifty-two percent of homes purchased between 2018 and 2021 had high-ratio mortgages. Homebuyers may choose a high-ratio mortgage because it requires a smaller down payment and, therefore, may allow buyers to purchase a home sooner than if you were to save enough money to qualify for a conventional mortgage.

High-ratio mortgage insurance 

All high-ratio mortgages in Canada require mortgage default insurance. For that reason, you may hear high-ratio mortgages also referred to as “insured mortgages.” A mortgage default results when a homeowner fails to make their mortgage payments. Default insurance protects the lender in case of default.

There are three providers of mortgage default insurance in Canada: the government's Canada Mortgage and Housing Corporation (CMHC), and private companies Canada Guaranty and Sagen (formerly Genworth Canada). Mortgage default insurance is arranged by your broker or lender and is typically rolled into your mortgage payments (meaning you pay it off over the course of your entire mortgage). You can also pay it off upfront as a lump sum when you buy your home.

Depending on where you buy a home, you may have to pay provincial sales tax (PST) on your mortgage default insurance. PST is charged on mortgage default insurance in Ontario (8%), Quebec (9.975%) and Saskatchewan (6%). The tax on mortgage default insurance is required to pay up-front, however, and is one of the closing costs you should consider if purchasing a home with an insured mortgage.

Not all homes in Canada can qualify for high-ratio mortgages. Mortgage default insurance is only eligible for homes that cost under $1 million. If you’re purchasing a home that costs more than $1 million, you’ll be required to have a down payment of at least 20%. Another thing to note is that, while conventional mortgages may be amortized over 30 years, the maximum amortization period for high-ratio mortgages is 25 years.

How do high-ratio mortgage rates differ from other mortgage rates? 

Conventional mortgages are for homes that are purchased with at least 20% down.

You can get competitive mortgage rates for both high-ratio and conventional mortgages. However, lenders typically offer lower rates for high-ratio mortgages. That’s because high-ratio mortgages are insured, so lenders consider them safer than conventional mortgages (because the lender will be covered in the event of a mortgage default).

Let’s compare current mortgage rates for different loan-to-value ratios.

It’s easy to compare mortgage rates for different mortgage types, both high-ratio and conventional. You’ll notice that high-ratio mortgages have lower rates for various mortgage term lengths, but this doesn’t mean your mortgage payments will be lower with an insured mortgage. Because the loan-to-value is higher for insured mortgages, high-ratio borrowers are required to have larger mortgages.

Let’s use our previous example of a home that costs $400,000. If you were to put 10% down ($40,000) and qualify for a mortgage rate of 1.94%, your monthly costs for a mortgage amortized over 25 years would be $1,561. If you were to put 20% down and qualify for a mortgage rate of 2.1%, your monthly costs (assuming the same amortization period) would be $1,346.

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