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A high-ratio mortgage is a home loan where the borrower makes a down payment of less than 20% of the property’s purchase price. In Canada, high-ratio mortgages require mortgage default insurance, commonly known as CMHC insurance, to protect lenders in case of default.

Understanding how a high-ratio mortgage works can help you navigate the home-buying process and determine whether it’s the right financing option for your situation.

How Does a High-Ratio Mortgage Work?

A mortgage is classified as high-ratio when the loan-to-value (LTV) ratio exceeds 80%—meaning the borrower is financing more than 80% of the home's value and has a down payment of less than 20%.

Since high-ratio mortgages pose a greater risk to lenders, borrowers must purchase mortgage default insurance, typically provided by:

✔ Canada Mortgage and Housing Corporation (CMHC)
✔ Sagen (formerly Genworth Canada)
✔ Canada Guaranty

This insurance allows lenders to offer more competitive interest rates while ensuring borrowers meet specific financial requirements.

Key Features of a High-Ratio Mortgage

✔ Mortgage Insurance Requirement – Borrowers must pay for mortgage default insurance, which can be added to the mortgage balance.
✔ Lower Interest Rates – Since the mortgage is insured, lenders may offer more competitive rates compared to uninsured conventional mortgages.
✔ Stricter Qualification Criteria – Borrowers must meet lender and insurer requirements, including gross debt service (GDS) and total debt service (TDS) ratios.

GDS and TDS Ratios: Why They Matter

Lenders assess mortgage affordability using two critical metrics:

1. Gross Debt Service (GDS) Ratio

Measures housing-related expenses—including mortgage payments, property taxes, heating costs, and 50% of condo fees—as a percentage of gross income.

2. Total Debt Service (TDS) Ratio

Includes all housing expenses plus other monthly debt obligations (such as credit cards, car loans, and personal loans) as a percentage of gross income.

📌 Use Frank Mortgage’s mortgage tools to calculate your GDS and TDS ratios and determine affordability.

Benefits of a High-Ratio Mortgage

✔ Easier Homeownership Access – Enables first-time homebuyers to purchase a home with a smaller down payment.

✔ Lower Interest Rates – Since high-ratio mortgages are insured, borrowers often qualify for better mortgage rates than uninsured borrowers.
✔ Flexible Mortgage Terms – High-ratio mortgages come with various term lengths to accommodate different financial situations.

Drawbacks of a High-Ratio Mortgage

❌ Additional Insurance Costs – Mortgage default insurance premiums increase the total mortgage amount.
❌ Stricter Qualification Rules – Borrowers must meet stricter credit and income requirements to qualify.
❌ Higher Monthly Payments – A smaller down payment means a larger loan amount, resulting in higher mortgage payments.

Is a High-Ratio Mortgage Right for You?

A high-ratio mortgage may be a good option if you:

✔ Are a first-time homebuyer with limited savings for a down payment.
✔ Have a stable income and a good credit history to qualify for mortgage insurance.
✔ Want to secure a competitive mortgage rate despite having a down payment of less than 20%.

However, if you can save for a 20% down payment, a conventional mortgage may help you avoid mortgage insurance costs, lowering your total borrowing expenses.

📌 Want to explore your mortgage options? Speak with a Frank Mortgage expert today.

Final Thoughts

A high-ratio mortgage can make homeownership more accessible, especially for first-time buyers, but it comes with additional costs and qualification requirements. Understanding your GDS and TDS ratios can help determine affordability and ensure you're making the right financial decision.

📌 Considering a mortgage? Frank Mortgage can help you find the best rates and financing solutions.

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Disclaimer

This article is for informational purposes only and should not be considered financial, mortgage, or legal advice. Interest rates, lending policies, and market conditions are subject to change at any time. While we make every effort to provide accurate and up-to-date information, we recommend speaking with a qualified mortgage professional before making any borrowing decisions. Frank Mortgage does not assume responsibility for any decisions made based on the content of this article. For the most current mortgage rates and policies, please refer to official sources such as the Bank of Canada or your mortgage lender.