Purchasing your dream home comes with a lot of different possibilities and options. One of the most popular options for first-time buyers and those with smaller down payments is a high-ratio mortgage. This article will help you understand what a high-ratio mortgage is and how it might be the right option for you.
What Is a High-Ratio Mortgage?
A high-ratio mortgage is a type of home loan that has a down payment of less than 20%. It is called "high-ratio" because the borrower's loan-to-value ratio is high — meaning there is a higher ratio of debt relative to the value of the property.
For example, if you purchase a home with a down payment of 5%, your loan-to-value ratio is 95% — a classic high-ratio mortgage. In comparison, if you make a down payment of 20% or more, your loan-to-value ratio would be 80% or lower, which does not require mortgage insurance.
A loan-to-value ratio is simply the percentage of the loan relative to the value of the property. For example, if a home is worth $200,000 and you put down 20%, your loan-to-value ratio is 80%. Put down 10% and it's 90%. The higher the ratio, the more the lender is exposed to risk — which is where mortgage insurance comes in.
What You Should Know About High-Ratio Mortgages
- You will need to pay for CMHC insurance. High-ratio mortgages require mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC). This insurance protects the lender in the event of default. The premium is added to your mortgage and paid as part of your monthly payment. CMHC insurance is only available for home purchases under $1,000,000 — anything higher requires a minimum 20% down payment.
- High-ratio mortgages often carry lower interest rates. This surprises many borrowers, but it's true: because the mortgage is backed by CMHC insurance, lenders face less risk of loss in the event of default. That reduced risk allows them to offer more competitive interest rates on high-ratio mortgages compared to conventional (uninsured) mortgages.
Benefits and Limitations of High-Ratio Mortgages
One of the biggest benefits of a high-ratio mortgage is that it allows you to buy a home without having to save up a large down payment. If you want to get into the market sooner, this can be one of the best options available.
The primary trade-off is the CMHC insurance premium. This premium is calculated as a percentage of the mortgage amount based on your loan-to-value ratio, and it is added to your total mortgage balance. While the interest rate on a high-ratio mortgage is often lower than on a conventional mortgage, the insurance premium does add to your overall borrowing cost over the life of the loan.
Recent Rule Changes That Affect High-Ratio Buyers
As of August 2024, eligible first-time buyers can now access 30-year amortization periods on insured mortgages, reducing monthly payments compared to the previous 25-year maximum. Additionally, as of December 15, 2024, the CMHC insured mortgage cap was raised from $1,000,000 to $1,500,000 — opening up insured financing to a broader range of BC homes. See the full New Mortgage Rules 2025 page for details on all recent changes.
Conclusion
Buying a home with a smaller down payment doesn't have to be complicated. A high-ratio mortgage is a well-established, government-backed path to homeownership — and for many Canadians, it's the right choice.
To find out whether a high-ratio mortgage is the right solution for your specific situation, contact me at your earliest convenience. I offer several mortgage solutions that may be available to you, and I work with industry-leading lenders who are committed to helping clients find the right fit. If you have any questions, I'm just a call or text away.