What is a High Ratio Mortgage?

For investment properties, residential homes, and multi-unit residential complexes, high ratio mortgages are available. For residential homes, a mortgage that exceeds 80% is considered a high ratio mortgage. For self-employed people, a mortgage in excess of 75% of the property value is considered a high ratio mortgage.

The high ratio mortgages, or insured mortgages, are thought to be riskier than the conventional mortgages as there is a less equity, should the borrower default. As a result of looser borrowing standards, some borrowers give a high-ratio loans that even higher than the value of their real estate property used as security.

High ratio mortgages are pretty common in the mortgage industry. These mortgage products serve borrowers who have steady cash flow, but have not saved for a large down payment or those who may have just entered the job market (eg: recent graduates).

Due to the higher risk, in Canada mortgage lenders have to insure all of the mortgage loans that are over the conventional mortgage limits. Despite the higher risk, insurance companies such as CMHC, AIG and GE have agreed to re-imburse the original mortgage lenders for any losses on insured mortgages.

The insured mortgages are available for first and second mortgages, and secured lines of credit. Borrowers with blemished credit history, may get mortgage through a mortgage broker and non-bank mortgage lenders.

The introduction of the mortgage insurance plan, made insured mortgage loans a low risk investment for institutional and private investors. In Canada, these mortgage loans originally were funded and packaged by CMHC, and securitized through the Canadian Mortgage Bond (CMB) program.

The introduction of high ratio insurance has facilitated investors to acquire income producing properties, with greatly reduced equity, thus increasing their returns. Although these leverage strategies carry some risk, but they have become cornerstone of majority investors wealth generation strategies.

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Gurmit Singh is a licensed mortgage expert with Dominion Lending Centres Mortgage Villa.

Gurmit Singh, mba
Mortgage Expert
M08009905
Dominion Lending Centres Mortgage Villa (11574)
Email:gurmit@gurmitsingh.ca
Website: http://www.gurmitsingh.ca