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What Are High Ratio Mortgages and How Does it Work?

Jun 12, 2008
Are you looking to buy a home? If you are than you need to know about high rate mortgages. This is how most people will have to buy their home because most people don't have the money needed for a down payment that will let them get the lower rates. Do you know what the definition of a high ratio mortgage is?

High ratio mortgages are when you get a loan that covers more than 80% of the value of the property you have mortgaged, in other words the loan value to the home value ratio is higher. When you buy your home, the ideal situation for loans, and for banks, is for you to put down a 25% down payment. However, most people are not able to do this because the cost of homes has gone up considerably from the past.

So, if you are not able to put down 25 percent you can still buy your home with the high ratio mortgages. With this type of high mortgage loan you will be able to put a down payment of 5 percent on the purchase price or in some cases even zero percent down. This will allow you to buy the home you want without you having to break the bank and put yourself into huge debt to come up with the 25 percent.

So how do the high ratio mortgages work? When you get a conventional mortgage the lender will insure the loan themselves because this means less risk for them. Lenders will want to make sure that if you default on your mortgage and the bank needs to force the sale of your home, that there will be enough equity in the property for the bank to get their money back. With the high rate mortgage loans you will have to get default insurance through a third party. The insurance is the key to the high ratio mortgage loans. If you don't have it then you won't be able to find any major lenders that will let you put a down payment of less than 25 percent. The reason for this is because the insurance will protect the lender's interests. Mortgage insurance companies will cover any deficit for the lender if there is not enough equity in your home if you default on the mortgage.

The purchase of mortgage insurance will add to the cost of buying a home but instead of paying for this upfront, most lenders will work the cost of your mortgage insurance into the mortgage payments. It is a good idea to speak to your mortgage broker for all of the details.

Now that you know how it works you need to know who can qualify for a high mortgage loan. The answer is that anyone that is qualified to buy a home can qualify for the high ratio mortgages. Obviously, there will be other factors that are included to determine if you qualify but this is something you will have to figure out with a mortgage lender. Some of the things that will be taken into consideration are how much you make, home much debt you have and so on.

So, if you want to buy a home and you need to do the high ratio mortgages than you will want to talk to a lender to find out what you need to do. Buying a home with high mortgage loans is definitely the way to go if you can't put down the 25 percent down payment. So get started today, learn more information about these mortgages and talk to a lender.
About the Author
Mary Anne Murphy is a real estate expert who can assist in your search for Oshawa homes for sale and information about the Pickering Real Estate market for both buyers and sellers. Mary Anne will be happy to assist with all of your real estate needs.
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