A high ratio mortgage occurs when your down payment is less than 25% of the purchase price of the home. In these circumstances, you will be required to pay an insurance premium (usually to Canada Mortgage and Housing Corporation – CMHC) to protect your lender from potential default. The CMHC insurance premium is calculated on a sliding scale as a percentage of your loan amount, depending on the size of the loan in relation to the purchase price. The scale used is as follows:
Loan Size (% of purchase price)
Premium (% of Loan)
Up to and including 75%
0.65%
Up to and including 80%
1.00%
Up to and including 85%
1.75%
Up to and including 90%
2.00%
Up to and including 95%
3.25%
Paying Premiums & Extras
Please note that a 0.25% premium surcharge may be added if you select a variable rate mortgage. Your premium can be paid in a one-time lump sum, or it can be added to the amount of your mortgage and included in your regular mortgage payments. To avoid surprises, you should confirm with your lender what costs will be deducted from the mortgage advance on closing. Frequently, the costs of the CMHC premium, 8% Provincial Sales Tax on the premium, an application fee, and a holdback for establishing a property tax account may be deducted from your mortgage advance on closing.
Conditions for High Ratio Mortgage
Not everyone qualifies for high ratio mortgages. You must be able to satisfy the following conditions:
The home must be in Canada, and you must occupy it as your principal residence.
You must have at least a 5% down payment from non-borrowed funds for a single-family dwelling, although maximum price ceilings will apply with only a 5% down payment.
Your home-related expenses must not exceed 32% of your gross household income.
Your total monthly debt load cannot exceed 40% of your gross monthly household income.
You must be able to pay closing costs equal to at least 1.5% of the purchase price.
