Is Getting a High Ratio Mortgage Worth It?

Is a high ratio mortgage worth it?

Are you a first-time home buyer considering buying a home and getting a high ratio mortgage but you are on the fence about it? Or are you curious about high ratio mortgages but you want more information? Whatever the scenario, we at custom capital lending are here to help. Continue reading on to learn more about high-ratio mortgages.

Firstly, what are high ratio mortgages? A High Ratio Mortgage is a loan with a downpayment that is less than 20% of the home’s purchase price. With a high ratio mortgage, you can buy a home with a downpayment as low as 5%. It is called a high ratio because of the spread between the loan ( mortgage amount) and the value ( purchase price)  This spread is also known as a loan-to-value ratio. A high ratio mortgage basically means you are borrowing more money than you would initially with a conventional mortgage plan..

High Ratio Mortgages have several advantages. 

With a high ratio mortgage, you can potentially become a homeowner sooner. 

You need a larger down payment to qualify for a high ratio mortgage. These kinds of mortgages usually have a low monthly payment and the loan terms are usually longer. With low monthly payments, it is understandable to see why you could potentially own a home a lot faster.

Lower interest rates

Lenders offer better interest rates to homeowners with high-ratio mortgages. This is a result of lenders being protected by default, so they give you low rates to get you to do business with them.

High Ratio Mortgages have several disadvantages 

You might need a mortgage insurance

You might need mortgage insurance to get a high-ratio mortgage. You will need to pay up to 4.5% of your mortgage amount in mortgage loan insurance. Not obtaining mortgage insurance might get your application rescinded.

You might end up paying more in the long run

With a high ratio mortgage, you will pay more interest over the term of your mortgage because you are borrowing more money than you would with a conventional mortgage.

In conclusion, High ratio mortgages can be good for people looking to own a home sooner. Make sure to check in with your broker and ask relevant questions where needed. Looking to obtain a high ratio mortgage? Reach out to us to see how we can help you and your home needs today.