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WHAT IS A HIGH-RATIO MORTGAGE? |
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A HIGH-RATIO MORTGAGE USUALLY REQUIRES MORTGAGE LOAN INSURANCE AND MUST BE PROVIDED BY EITHER CMHC OR GE CAPITAL. IT IS A MORTGAGE IN WHICH THE AMOUNT TO BE BORROWED IS MORE THAN 75% OF THE PURCHASE PRICE OR THE APPRAISED VALUE, WHICHEVER IS LESS.
THE BENEFIT TO A BORROWER IS THAT IT ALLOWS THEM TO PURCHASE A HOME WITH LESS THAN 25% DOWN PAYMENT. THE INSURANCE PREMIUM IS PAID BY THE BORROWER AND CAN BE ADDED DIRECTLY TO THE MORTGAGE. THE MORTGAGE LOAN INSURANCE PREMIUM IS PAID TO CMHC OR GE AND PROTECTS THE LENDER IN THE EVENT THE MORTGAGE IS NOT REPAID AND THE BANK HAS TO TAKE BACK THE PROPERTY.
BORROWERS WITH A 5% DOWN PAYMENT WHICH IS A LOAN TO VALUE OF 95% WOULD PAY A PREMIUM OF 3.75%. THOSE WITH A 20% DOWN PAYMENT, A LOAN TO VALUE OF 80% WOULD PAY AN INSURANCE PREMIUM OF 1.25%. MORTGAGE LOAN INSURANCE PREMIUMS RANGE FROM .50% TO 3.75% OF THE MORTGAGE AMOUNT, AND ARE BASED ON THE OVERALL LOAN TO VALUE. |
