Mortgage Matters: High Ratio Insured Mortgages

An Insured Mortgage is one which is insured by the Federal Housing Administration.  The Insurer does not actually loan the money itself, but rather insures home mortgage loans issued by banks and other lenders so that the lender has reduced risk in the case of default by the borrower.

A High Ratio Insured Mortgage is mortgage financing whereby the down payment is less than 20%.

Minimum down payment allowance is 5% for purchases under $1 million.

The mortgage qualifications are more stringent Gross Debt Service and Total Debt Service Ratios (GDS & TDS) and the lender decides which Mortgage Insurer to obtain.

Advantages facilitate min down payment, no appraisal required(Insurer uses their own property assessment), less risk to lenders if mortgage goes into default, promotional mortgage rates, purchase plus improvements and now offer incentive products for affordable housing (conditions apply).

Currently there are 3 Insurers in Canada;

Canada Guaranty

The Insurance Premium is added to the mortgage amount bearing interest throughout the mortgage term, here is the general fee breakdown;

4.00% – 5% down payment

0.60% – up to 35% down payment

The applicants are however responsible to pay the HST of the premium on the property closing date.

Here is an example of a purchase with 5% down payment:

$850,000.00 Purchase Price
$  42,500.00 5% Down Payment
$807,500.00 Gross Mortgage Amount
$  32,300.00 Insurer premium 4.00%
$839,800.00 Total Mortgage Amount

Try this handy cell phone link that pre-calculates your mortgage payments and costs: http://m.mortgageweb.ca/marisaparise