For many Canadians, saving enough to buy a home while also covering rent and daily expenses can feel out of reach. But high-ratio mortgages are the ideal solution.
They make homeownership more accessible by requiring a smaller down payment. However, they also come with extra costs and mortgage insurance.
The point is, is this the right option for you? Find out everything you need to know in this guide from BestMO.
What is a high-ratio mortgage?
A high-ratio mortgage is a mortgage with a down payment that falls below 20% of the property’s purchase price. This means you are borrowing more than 80% of the home’s value, resulting in a higher loan-to-value ratio.
When borrowers contribute less equity upfront, lenders face increased exposure should property values decline or payment difficulties arise. To mitigate this risk, Canadian regulations mandate mortgage default insurance for all high-ratio mortgages.
While the borrower pays the premium, the coverage protects the lender, ensuring loan repayment even if the borrower defaults. It can maintain lending stability while expanding homeownership opportunities across diverse economic backgrounds.
High-ratio mortgages vs conventional mortgages
The distinction between high-ratio mortgages and conventional mortgages (low-ratio mortgages) extends beyond down payment requirements.
The table below will clarify the high-ratio vs conventional mortgage:
| Feature | High ratio mortgage | Low ratio mortgage |
| Down Payment | Less than 20% | 20% or more |
| Mortgage Insurance | Mandatory | Not required |
| Maximum Amortization | 25 years (30 for eligible buyers) | Up to 40 years |
| Interest Rates | Lower | Higher |
| Maximum Home Price | $1.5 million | No limit |
High-ratio mortgages vs insurable mortgages
The main difference is who pays for the insurance and the reason it is needed.
Here is a detailed comparison:
| Feature | High-ratio mortgage | Insurable mortgage |
| Loan-to-Value (LTV) | More than 80% (down payment less than 20%) | 80% or less (can be high or low ratio, but must meet criteria) |
| Insurance Requirement | Mandatory; paid by borrower | Optional; typically paid by the lender |
| Who Pays the Insurance? | The borrower | The lender (if they choose to insure the loan) |
How to qualify for a high-ratio mortgage in Canada
Here’s a step-by-step roadmap to prepare for high-ratio mortgages:
Step 1: Prepare your financial profile
Securing approval for a high-ratio mortgage involves meeting 4 specific criteria that demonstrate your ability to manage financial responsibility over the long term.
High credit score
Credit score requirements start at 600. Stronger scores above 680 can unlock better high-ratio mortgage rates and terms. Your credit history reveals payment methods, debt management skills, and financial reliability, so that it can predict future payment behaviour more accurately than income levels alone.
Income and employment verification
A stable employment history strengthens your application. So, it is ideal to span 2 years with the same employer or within the same field. If you are self-employed, you will need to show 2 years of tax returns and business records to prove your income is steady.
Suitable debt service ratios
Your gross debt service ratio should not exceed 39% of gross household income. It includes housing costs, including mortgage payments, property taxes, heating, and condo fees. The total debt service ratio, incorporating all debt obligations, must remain below 44% of gross income.
Mortgage stress test requirement
The mortgage stress test ensures borrowers can manage payments even if current mortgage rates increase. You must qualify at either the Bank of Canada’s qualifying rate or your contract rate plus 2%, whichever proves higher. This buffer protects both borrowers and the broader financial system from potential rate shocks.
Step 2: Apply for mortgage pre-approval
Mortgage pre-approval shows how much you can afford to borrow and makes your home search easier. If your down payment is under 20%, the lender will also arrange mortgage insurance through CMHC, Sagen, or Canada Guaranty.
Step 3: Finalize the purchase and insurance
After making an offer on a home and receiving lender approval, your high-ratio mortgage will be submitted to an insurer for underwriting. If accepted, the insurance premium will be added to your mortgage or paid upfront.
Pros and cons of a high-ratio mortgage
3 Advantages of high-ratio mortgages are:
- Immediate market entry: Buying a home sooner lets you start building equity right away instead of spending money on rent each month. As your property’s value increases over time, those gains can help balance out the cost of mortgage insurance.
- Timing flexibility: Instead of waiting years to save a 20% down payment while home prices keep going up, you can get into the market sooner if you are financially prepared.
- Competitive interest rates: First-time buyers are offered lower interest rates when choosing high-ratio mortgages.
However, there are still 2 disadvantages to consider:
- Insurance premium costs: Mortgage insurance premiums can be paid upfront or added to your mortgage principal. It increases either your closing costs or long-term interest charges.
- Higher monthly obligations: Higher monthly payments result from both the larger loan amount and potential premium financing. This increased cash flow requirement may limit lifestyle flexibility or savings capacity for other goals.
How much does a high ratio mortgage cost in Canada?
The total cost of a high-ratio mortgage in Canada is calculated based on the size of your down payment and the loan-to-value ratio. The smaller your down payment, the higher your LTV, and the more you will end up paying in both insurance premiums and monthly mortgage payments.
LTV ratio calculation formula:
LTV Ratio = (Home price – Down payment) / Home price * 100%
For example, if you are buying a home priced at $500,000 and you put down only 5% ($25,000), the LTV will be 95%. This is considered a high ratio mortgage.
As a result, you will be required to pay for high-ratio mortgage insurance, with the premium set at 4.00% of the loan amount. This adds $19,000 to your mortgage, bringing the total to $494,000.
Assuming a 5-year fixed mortgage rate of 4.64% and a 25-year amortization, your monthly payments would be approximately $2,773. Over the life of the mortgage, the total interest paid would amount to around $337,821.
How to avoid a high ratio mortgage in Canada
Avoiding a high-ratio mortgage can save you thousands in insurance premiums and give you more flexibility in your mortgage structure. The most effective approach is to ensure your down payment is 20% or more. This reduces your loan-to-value ratio to 80% or less, qualifying your loan as conventional and freeing you from the obligation to pay for default insurance.
If your down payment is less than 20%, there are 3 ways to improve the situation:
- Save a larger down payment: Increasing your initial savings helps avoid the need for mortgage insurance. Even an extra 1 – 2% down can reduce the premium if you can not yet reach the full 20%.
- Buy a more affordable home: Reducing the purchase price naturally lowers the amount you need for a 20% down payment. This is especially useful in competitive housing markets where every percentage matters.
- Use financial programs and gifts: You can tap into resources like the Home Buyers’ Plan. It allows withdrawals from your RRSP. Or, you can consider monetary gifts from family members to supplement your savings. These sources must be verifiable and comply with lender documentation rules.
By avoiding a high-ratio mortgage, you reduce your long-term cost burden and maintain greater flexibility in choosing an amortization period and lenders.
What are the high ratio mortgage renewal requirements?
High ratio mortgage renewal depends heavily on your remaining loan-to-value, lender’s policies, and whether you are staying with the same lender or switching to a new one.
To prepare, get a recent mortgage statement and check your updated LTV. If your home has increased in value or you have made extra payments, your LTV might now be under 80%, which could open up more options.
It’s also a good idea to keep an eye on your credit score and debt levels. These will still matter, especially if you want to refinance or move your mortgage to a different lender.
High ratio mortgage renewing with the same lender
If your financial situation remains stable, the lender may offer a new term with updated rates. You do not need to requalify under the mortgage stress test at renewal when staying with the same institution.
In addition, high ratio mortgage renewals are not subject to CMHC’s reapproval. The mortgage insurance from your initial term remains in effect, and no new premium is charged. However, if you want to increase your mortgage amount or extend your amortization period, a requalification, including another stress test, may be necessary.
High ratio mortgage switching to a new lender
To switch, you must requalify under current lending rules, which include passing the mortgage stress test again. This can be challenging if your debt load has increased, your income has decreased, or mortgage rates have risen since your original approval.
Because it is an already insured mortgage, you will not need to pay the insurance premium again. However, not all lenders accept insured mortgages that were underwritten by another institution.
Another important factor is the remaining amortization. If your initial term was 25 years (the maximum allowed for insured loans), then switching to a new lender who requires a full reapplication could lock you into another 25-year schedule unless your LTV has dropped.
Frequently asked questions about high ratio mortgages
What is the minimum down payment required for a high-ratio mortgage?
In Canada, the minimum down payment for a high-ratio mortgage is 5% of the purchase price for homes valued up to $500,000.
Why are high-ratio mortgage rates lower?
This is because they are insured by the CMHC or a similar provider, which significantly reduces the lender’s risk. The presence of mortgage default insurance allows lenders to offer reduced interest rates, even though the total cost to the borrower may still be higher due to the insurance premiums.
Can you get a mortgage with a high debt-to-income ratio?
Yes, but it is more difficult. Canadian lenders look for a gross debt service ratio under 39% and a total debt service ratio under 44%.
What is a fixed high ratio mortgage?
A fixed high-ratio mortgage is a home loan where the borrower puts down less than 20% of the property’s purchase price, requiring mortgage default insurance, and the interest rate remains constant for the length of the term.
The bottom line
Success with a high-ratio mortgage starts with understanding your whole financial situation. You need to be sure you can afford the monthly payments while still saving for emergencies and retirement.
For people with steady income and low debt, a high-ratio mortgage can be a smart way to get into the housing market sooner. The important part is knowing the risks and making decisions that help you stay on track with your long-term financial plans.
