High Ratio Mortgage Insurance
What is High Ratio Mortgage Loan Insurance?
High Ratio insurance is required by lenders when you make a down payment of less than 20% of the purchase price. High Ratio insurance helps protect lenders against mortgage default and enables you to purchase a home with a down payment with as little as 5% — with interest rates comparable to those with a 20% down payment.
To obtain High Ratio insurance, your lender will pay the insurance premium. Your lender will usually pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum, but most clients finance it in their mortgage and pay in your monthly payments.
Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
What’s in it for You?
- You may be able to purchase a home with as little as a 5% down payment
- High Ratio Insurance can be applied to many different types of housing.
- High Ratio Insurance is available everywhere in Canada.
What’s in it for Canadians?
The Canadian housing finance system has benefited over the years from the simplicity and stabilizing effect of mandatory mortgage loan insurance. This insurance eliminates the risk to lenders, allowing them to offer borrowers like you mortgage funding at much lower interest rates and with smaller down payments than would otherwise be required.
Mandatory mortgage loan insurance provides a necessary safety net to the financial system, helping to ensure the availability of mortgage funding during times of recession and economic downturns.
Who Needs High Ratio Mortgage Loan Insurance?
Lenders require High Ratio insurance for lmortgages made to anyone that wishes to purchase a home with a down payment less than 20% of the purchase price. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home.
Who are the High Ratio Insurance providers?
There are three High Ratio Insurance providers in Canada; CMHC, Genworth, and Canada Guaranty. You can find more info on each of teh insurers websites by clicking on the logos below.
How much does High Ratio Insurance cost?
|High Ratio Insurance Premiums|
|Loan To Value Ratio||Premium on Total Loan Amount|
|Up to an including 65%||0.60%|
|Up to and including 75%||0.75%|
|Up to and including 80%||1.25%|
|Up to and including 85%||1.80%|
|Up to and including 90%||2.40%|
|Up to and including 95% - Traditional Down Payments||3.60%|
|Up to and including 95% - Non-Tradtional Down Payment||3.85%|
Traditional Down Payment Sources
Applicant savings or at least 90 days, RRSP withdrawal (funds must be in an RSP for at least 90 days), funds borrowed against proven assets, sweat equity (<50% of min. required equity), raw land value (with no mortgage or leeins against the proeprty), proceeds from sale of another property, non-repayable gift from immediate relative, equity grant (non-repayable from federal, provincial or municipal agency).
Non-Traditional Down Payment Sources
Any source that is arm’s length to and not tied to the purchase or sale of the property such as borrowed funds, gifts and 100% sweat equity.