Glossary
High-Ratio Mortgage
A high-ratio mortgage exceeds 80% of a property's value or purchase price, meaning the down payment is under 20%, and it must be insured against default..
A high-ratio mortgage is a mortgage that is larger than 80% of a property's value or purchase price, which means the borrower's down payment is less than 20%. Under Canadian rules, a high-ratio mortgage must be insured against default, so the lender is compensated if the borrower stops making payments.
Why high-ratio mortgages must be insured
When a borrower has little equity, the lender carries more risk, so federal rules require default insurance once the loan-to-value ratio rises above 80%. Three approved insurers provide this coverage in Canada: CMHC (Canada Mortgage and Housing Corporation), Sagen, and Canada Guaranty. The lender arranges the coverage, and the insurer charges a premium. That premium is calculated from the loan-to-value ratio and the amortization period, and it is usually added to the mortgage balance instead of being paid in cash. The insurance protects the lender, not the borrower. Confirm current premium rates and eligibility with the insurer or your lender.
High-ratio versus conventional
The size of the down payment is what separates a high-ratio mortgage from a conventional mortgage.
| Down payment | Result |
|---|---|
| 20% or more | Conventional mortgage; default insurance not required |
| Less than 20% | High-ratio mortgage; default insurance required, premium applies |
What it means for a borrower
Because the premium is normally folded into the principal, a high-ratio borrower pays interest on it over the life of the mortgage. Insured loans also carry limits set by federal rules, such as a maximum amortization period and a maximum property price for insured financing, and the mortgage generally must be on an owner-occupied home. An insured mortgage typically cannot later be used to secure a re-advanceable line of credit. Borrowers should also expect the federal mortgage stress test, which applies when qualifying for a mortgage. Full details of mortgage default insurance are set out by CMHC and the other approved insurers, and premium amounts change over time.
Frequently asked questions
Do I need CMHC insurance if my down payment is less than 20%?
Under federal rules, a mortgage above 80% loan-to-value must be insured by an approved insurer, and CMHC, Sagen, and Canada Guaranty all offer that coverage. The lender arranges it and passes the cost on to you, usually by adding the premium to the mortgage balance. Premium amounts vary by loan-to-value ratio and amortization.
Can I avoid paying the mortgage default insurance premium?
The main route is a down payment of at least 20% of the purchase price, which makes the mortgage conventional and removes the insurance requirement. Otherwise, default insurance is mandatory for federally regulated lenders and the premium cannot be waived. Provincially regulated credit unions may operate under different rules, so ask your lender.
Does a high-ratio mortgage change my interest rate?
Insured mortgages are lower risk for the lender, so they often carry slightly lower rates than uninsured ones, but the added insurance premium increases the balance you pay interest on. Insured loans also face limits such as a maximum amortization and a maximum property price. Compare total borrowing cost, not the rate alone.
Sources
Related terms
- Mortgage Default Insurance — Insurance that protects the lender, not the borrower, when a high-ratio mortgage goes into default and the home sale does not repay the debt.
- Loan-to-Value Ratio (LTV) — The loan-to-value ratio (LTV) is the size of your mortgage expressed as a percentage of the property's appraised value or purchase price.
- Down Payment — A down payment is the portion of a home's purchase price a buyer pays upfront, reducing the amount borrowed through a mortgage.
- Conventional Mortgage — A conventional mortgage is a home loan at 80% or less of the property's value, so mortgage default insurance is not required.
- Mortgage Stress Test — The federal mortgage stress test is a qualification rule that makes lenders check whether you could afford your mortgage if rates were higher than your contract rate.