Want to buy a home but have a smaller down payment? A high-ratio mortgage could be the solution. It is a type of home loan where the buyer puts down less than 20% of the purchase price. This creates a loan-to-value (LTV) ratio over 80%. For example, if you buy a $500,000 home and put down $50,000, your mortgage is high-ratio. This option helps many people enter the housing market, even with a 5% down payment. It supports first-time buyers, younger families, and anyone with limited savings. However, high-ratio mortgages carry more risk for lenders. That’s why they require mortgage default insurance.
In Canada, this insurance is mandatory for high-ratio loans. It protects the lender if the borrower fails to repay. The cost depends on your down payment and loan amount and is added to your monthly mortgage payments. This guide will explain what a high-ratio mortgage is, how it works, and what to consider before choosing it. Whether you’re in Canada or another market, this guide will help you make informed decisions about homeownership.
What is High Ratio Mortgage?
A high-ratio mortgage is a type of home loan. It applies when the down payment is less than 20% of the home’s value. In this case, the Loan-to-Value ratio (LTV) is more than 80%. The LTV tells you how much of the home’s value is covered by the loan. For example, if your home costs $400,000 and you pay only $40,000 upfront, your LTV is 90%. That means your mortgage covers 90% of the property. In Canada and many other places, this is called a high-ratio mortgage.
High-ratio mortgages help buyers enter the market with low savings. But they also carry more risk for lenders. That’s why they require mortgage default insurance. This insurance protects the lender in case the borrower cannot pay the loan.
In Canada, a mortgage is high-ratio if:
- The down payment is less than 20%
- The LTV ratio is above 80%
- The property costs less than $1.5 million
- The amortization period is 25 years or less (30 years allowed for first-time buyers or new homes)
These mortgages must have mortgage default insurance. This insurance cost is added to the loan or paid upfront.
Loan-to-Value (LTV) Ratio
The LTV ratio is key to knowing if your loan is high-ratio. It compares your loan amount to your home’s price. The formula is:
LTV = (Loan Amount ÷ Home Value) × 100
For example, borrow $90,000 for a $100,000 home, LTV is 90%.
A higher LTV means a higher risk for lenders.
Typical LTV Ratios for High-Ratio Mortgages
Here’s a simple comparison:
| Mortgage Type | Down Payment | LTV Ratio | Mortgage Insurance Required? |
| High-Ratio Mortgage | Less than 20% | Over 80% | Yes |
| Conventional Mortgage | 20% or more | 80% or below | No |
In Canada, a high-ratio loan means less than 20% down. Buyers must put down at least 5% for homes up to $500,000. For homes priced between $500,001 and $999,999, buyers need 10% for the portion above $500,000. Homes priced at $1.5 million or more need at least 20% down. These do not qualify for default insurance.
Types of High-Ratio Mortgage
When you’re buying a home with less than 20% down payment, you’ll encounter different types of high-ratio mortgages. Let’s break them down in simple terms.
1. Fixed-Rate High-Ratio Mortgages
A fixed-rate high-ratio mortgage locks in your interest rate for the entire term, keeping your payments consistent. This stability makes budgeting easier, especially when interest rates fluctuate.
The most common choice is a 5-year fixed high-ratio mortgage, where your rate stays the same for five years. However, these mortgages are usually “closed,” meaning you’ll face penalties if you pay off the loan early or refinance before the term ends.
Fixed-Rate High-Ratio Mortgage is best for homebuyers who want predictable payments and protection from rising interest rates.
2. Closed High-Ratio Mortgages
A closed high-ratio mortgage offers a lower interest rate in exchange for limited flexibility. You commit to keeping the mortgage for the full term, and breaking it early comes with steep penalties—often thousands of dollars.
These penalties are calculated either as three months’ interest or an interest rate differential (IRD), whichever costs more. While you save on interest, you lose the freedom to refinance or access equity without extra fees.
Closed High-Ratio Mortgage is Best for borrowers who don’t plan to sell, refinance, or make large prepayments during their term.
3. High-Ratio Insured Mortgages
All high-ratio mortgages in Canada (with less than 20% down payment) require mortgage default insurance from providers like CMHC, Sagen, or Canada Guaranty. This protects lenders if you default on payments.
The insurance premium depends on your down payment:
- 5% down = ~4% insurance fee
- 10% down = ~3.1% insurance fee
- 15% down = ~2.8% insurance fee
You can pay this premium upfront or add it to your mortgage (meaning you’ll pay interest on it). Unlike some insurance, this cost is non-refundable—even if you sell or refinance early.
High-Ratio Insured Mortgage is best for buyers who need a mortgage with a small down payment but still want competitive rates.
High-Ratio Mortgage vs. Conventional Mortgage
When financing a home, the size of your down payment determines if your mortgage is high-ratio or conventional. A high-ratio mortgage requires a down payment of less than 20% of the property’s price. This means you borrow more than 80% of the property’s value. Due to the higher risk for lenders, you need to buy mortgage default insurance. In Canada, the insurance providers include CMHC, Sagen, and Canada Guaranty. The insurance adds to your cost but can help you access lower interest rates.
A conventional mortgage requires a 20% or higher down payment. It does not require insurance. Conventional mortgages also often have longer amortization periods. While conventional loans don’t have insurance premiums, they may come with slightly higher interest rates. In Canada, high-ratio mortgages are available for properties under $1.5 million. Conventional mortgages, on the other hand, don’t have a price limit.
The total cost difference depends on the balance between interest savings and insurance premiums. It’s important to weigh both options carefully.
High-Ratio Mortgage vs. Conventional Mortgage Feature Comparison
| Feature | High-Ratio Mortgage | Conventional Mortgage |
| Down Payment | Less than 20% of the property’s purchase price | 20% or more of the property’s purchase price |
| Loan-to-Value Ratio (LTV) | More than 80% | 80% or less |
| Mortgage Insurance | Mandatory (e.g., CMHC, Sagen, Canada Guaranty in Canada) | Not required |
| Who Pays Insurance Premiums | Borrower (can be added to the mortgage principal or paid upfront) | Not applicable |
| Insurance Premium Rate | Varies by down payment; typically ranges from 2.8% to 4% of the mortgage amount | Not applicable |
| Maximum Property Price | Up to $1.5 million (in Canada, for insured loans) | No price limit |
| Amortization Period | Typically up to 25 years (30 years allowed in special cases like first-time buyers) | Up to 30–40 years, depending on lender and borrower profile |
| Interest Rates | Often lower due to insurance reducing lender risk | Often slightly higher, no insurance backing |
| Monthly Payments | May be lower due to lower interest, but higher due to added insurance cost | May be higher monthly due to higher loan amount and no insurance |
| Upfront Cost | Lower upfront savings needed | Higher upfront investment required |
| Overall Borrowing Cost | Lower rates but insurance adds to total cost | No insurance cost but may pay more interest over time |
| Ideal For | First-time buyers, low savings, entering the market early | Buyers with large savings, long-term plans, or high-value home purchases |
High-Ratio Mortgage Considerations
When getting a high-ratio mortgage (with less than 20% down payment), two key factors affect your borrowing: insurance costs and qualification requirements. Let’s break these down in simple terms.
Mortgage Insurance Costs
All high-ratio mortgages require insurance to protect the lender. This insurance premium is calculated as a percentage of your loan amount, not the home price. The exact percentage depends mainly on your down payment size – the smaller your down payment, the higher the insurance cost.
For example, in Canada:
- A 5% down payment means about 4% insurance
- 10% down reduces this to around 3.1%
- 15% down brings it down to approximately 2.8%
You can pay this insurance premium upfront or add it to your mortgage. Adding it means you’ll pay interest on that amount over time. On a 300,000mortgagewith5300,000mortgagewith512,000 added to your loan.
Qualification Requirements
Lenders have stricter rules for high-ratio mortgages because they’re riskier. Here’s what they typically look for:
- Credit Score: You’ll need good credit (usually 600+ in Canada) to qualify. Better scores get you better rates.
- Debt Limits: Your total monthly debts (including the new mortgage) generally can’t exceed 44% of your gross income in Canada.
- Income Verification: You must prove stable income through pay stubs or tax returns. Self-employed borrowers often need extra documentation.
- Stress Test: In Canada and some other countries, you must qualify at a rate about 2% higher than your actual rate to ensure you can handle potential increases.
- Property Limits: There may be maximum home price limits (like Canada’s $1.5 million cap for insured mortgages).
These rules exist worldwide, though exact numbers vary by country. Canada’s system with CMHC, Sagen and Canada Guaranty provides a clear example of how this works in practice.
Who Benefits Most?
High-ratio mortgages help:
First-time buyers with limited savings
Buyers in expensive markets where 20% down is difficult
Those with good income but smaller down payments