A mortgage can be either conventional or high ratio. The classification is based on the mortgage’s loan-to-value (LTV). What is LTV?
LTV = Mortgage Amount/ Property Value
For example, let’s say you are purchasing a property for $500 000 and you are putting 20% down ($100 000). The mortgage amount = $500 000 – $100 000 = $400 000. So the LTV = 400 000/ 500 000 = 80%
Mortgages with an LTV less than 80% (because you put more than 20% down) are called conventional mortgages.
Where as, a mortgage with an LTV greater than 80% (because you put less than 20% down) are called high ratio mortgages. If a high ratio mortgage is provided by a bank, mortgage default insurance is needed on the loan. CMHC, Genworth Financial and Canada Guaranty are three default insurance providers. The premium for this default insurance is added to the mortgage amount and amortized over the length of the mortgage.
If the mortgage is not provided by a bank, mortgage default insurance isn’t required. However, lenders often charge a lender’s fee to create a reserve fund and offset the risk of providing a high LTV mortgage. This means that even if you don’t qualify for a mortgage at a bank, you can still get a high ratio mortgage. This is where a mortgage agent can help the most. Contact me right now, so I can find the best lender for your unique situation.