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What is a Fixed High Ratio Mortgage? Know Your Mortgage Options in Canada
October 24, 2024 | Posted by: Tim Belanger
Buying a home is one of the most significant financial decison you’ll ever make, and navigating mortgage loans for investment properties can be overwhelming. If you've got less than a 20% down payment, you might have heard about something called a fixed high ratio loan. This type of mortgage not only allows you to secure a home with a smaller down payment but also provides the stability of a fixed interest rate.
In this guide, we’ll break down what a fixed high ratio mortgage is, the way it works, and why it is probably the perfect choice for your home buying journey in Canada.
Fixed High Ratio Mortgage Definition
A fixed high ratio mortgage is a type of high rate mortgage where the interest rate is constant throughout the mortgage term length. This way, when you are buying a house with a down payment of less than 20%, you may have to pay for mortgage insurance, but your interest rate will remain the same throughout the mortgage term.
For example, if you’re buying a house and can only afford a 10% down payment, you'll probably need to take out a fixed-rate high ratio mortgage. This means your interest rate is locked in for a specified period (usually 1 to five years), giving you predictable monthly payments over the mortgage term. This type of mortgage provides stability, especially in times of fluctuating interest rates.
How does a fixed rate mortgage work?
A loan with a constant high ratio combines key factors:
- Fixed interest rate: With this method, the interest rate will be the same throughout the loan term. It differs from a variable mortgage where the rates can change depending on the market.
- High ratio loan: Since your down payment is lower than 20%, you are required to get loan insurance for fixed high ratio mortgages, which protects the lender in case you default on the mortgage.
This form of mortgage is particularly beneficial if you prefer consistency and want to avoid the risk of interest rates rising during mortgage term length.
Fixed High Ratio Mortgage in Canada Terms and Conditions
In Canada, the ordinary fixed high ratio loan terms can range from 1 to 5 years, even though longer terms can also available. During this period, your interest rate stays unchanged, making it simpler to plan your budget. However, it’s critical to consider that mortgage insurance premiums are required for all high ratio mortgages, and the cost is based totally on your loan amount and down payments size. .
The benefit of locking in a fixed hobby rate is that it protects you from potential increases in mortgage rates, giving peace of mind, especially in uncertain circumstances.
Is a Fixed High Ratio Mortgage Right for You?
Choosing a fixed rate mortgageCanada can be an awesome option if you’re seeking out predictable payments and prefer to have the security of a fixed interest rate. However, you’ll need to balance this against the added cost of mortgage insurance for fixed high ratio loans, that's required when your down payment is less than 20%.
The Difference Between a Fixed High Ratio Mortgage and Other Mortgages
A fixed high ratio mortgage differs from different types of mortgages in several ways. Here's how to compare:
- Conventional Mortgage: With 20% or more down payment, you may not have to pay for mortgage insurance and you can choose either a fixed or variable interest rate.
- Variable High Ratio Mortgage: Compared to a fixed option, a variable high ratio mortgage comes with an interest rate that can vary completely in the market. While this may indicate lower payments when rate are low, there is also the risk of higher payments if rates rise.
It is important to consider the pros and cons of each form of mortgage. Working with a professional mortgage consultant – like those at the best mortgage company near you– will allow you to recognize which alternative is right for you.
The Bottom Line: Is a Fixed High Ratio Mortgage Right for You?
A Fixed high ratio loan is a remarkable option for Canadians who need to buy a home with a lower down payment, while enjoying the stability of a fixed rate loan. This mortgage loan for investment properties does come with a cost of mortgage coverage, but it represents peace of mind and protection from rising interest rates.
If you're considering your mortgage options, it's essential to speak to a professional mortgage consultant, such as those at Belanger Mortgages, to make sure you're making the right decisions for your financial situation. Whether you're buying your first home in Canada, investing in assets, or even exploring the average cost of mortgage life insurance,the right mortgage strategy can save you thousands over the years.
Contact Belanger Mortgages today to learn more about what a high ratio mortgage is or to get started on finding the right mortgage solution for you.
Frequently asked questions
- Is it ever a good idea to refinance at a higher rate?
Refinancing at a higher rate can be beneficial in specific cases, such as consolidating high-interest debt or accessing home equity for urgent expenses like renovations. It may also help lower monthly payments by extending the loan term if your financial situation changes. However, it’s essential to weigh the long-term costs carefully before proceeding.
- What is the mortgage ratio rule?
The mortgage ratio rule refers to the loan-to-value (LTV) ratio, which measures the size of the loan relative to the property value. A high ratio loan (LTV above 80%) requires mortgage coverage, while a low ratio mortgage (LTV 80% or less) does not. Lenders use this rule of thumb to assess risk because better LTV ratios indicate less equity and higher lender risk.
