What is high ratio mortgage insurance? Why is it needed?
In Canada, you can purchase a home with as little as 5% down. This is called “high-ratio” financing. Once the loan request is above 80%, you fall into the high-ratio financing category and the mortgage must be insured through one of Canada’s lender insurance companies. There are 3 major mortgage insurance providers, Canada Mortgage & Housing Corporation (CMHC), Sagen, and Canada Guaranty. This is not the same as life or disability insurance. This is insurance protection for the lender for default or loss. The premium is calculated as a percentage of the mortgage and can be paid either from your own resources or added to the mortgage.
The minimum down payment requirement is 5% for up to $500,000 of the purchase price, and 10% for the portion above $500,000. Homes that are $1,000,000+ require a minimum down payment of 20%. Click here for an information link with a chart for minimum down payment amounts.
In the table below, you will see premiums for loan amounts less than 80%. This is because sometimes a bank will require the mortgage to be insured even at a lower loan-to-value ratio if the assessed risks for the property are higher, ie geographic location.
When you are obtaining a high-ratio mortgage, there are 2 approvals that take place. One from the bank and one from the insurer. The maximum available amortization for high ratio loans is 25 years. High ratio financing is available for homes under $1,000,000. For prices above $1,000,000, a minimum down payment of 20% is required.
|Applicable Premiums (Owner-occupied properties)|
|Loan-to-Value Ratio||Premium %|
|Up to & including 65%||0.60%|
|Up to & including 75%||1.70%|
|Up to & including 80%||2.40%|
|Up to & including 85%||2.80%|
|Up to & including 90%||3.10%|
|Up to and including 95%|
- Traditional Down Payment*
- Non-Traditional Down Payment**
Down Payment Requirements
* Traditional sources of down payment include: Applicant’s savings, RRSP withdrawal, funds borrowed against proven assets, sweat equity (<50% of min. required equity), land unencumbered, proceeds from sale of another property, non-repayable gift from immediate relative, equity grant (non-repayable grant from federal, provincial or municipal agency).
**Non-traditional sources of down payment include: Any source that is arm’s length to and not tied to the purchase or sale of the property, such as borrowed funds, gifts, 100% sweat equity, lender cash back incentives.
CMHC – FAQs – Mortgage Loan Insurance
Understanding your Credit Report & Credit Score
Mortgage Overview – Government of Canada, Financial Consumer Agency.