What is a High Ratio Mortgage?
You can get high ratio mortgage for if you are buying traditional residential homes, multi story residential blocks like an apartment building or an investment property. A loan of high ratio on residential property is one which is over 80% of the security of the real estate for the median annual income of the applicant's family. For the people who are self employed and are looking for financing on low-documentation program, a high ration loan is assumed to exceed 75% of the security of the real estate.
A High ratio mortgage is also referred as insured mortgage. An insured mortgage or one with a high ratio is riskier than the conventional type because the available amount of equity is reduced under the circumstances in which the borrower fails to pay the payments of mortgage. In certain cases during 21st century, as a consequence of the low borrowing standards, some borrowers may get high ratio mortgage which goes beyond the actual security value of the real estate.
Due to this risk factor involved, it is necessary for all the established mortgage lenders in Canada to get their mortgage loans insured. Specially the ones that exceed the common mortgage maximums. This will result in reducing the capital reserves that are kept aside by banks to cover the losses on such loans. However, various insurance companies with high ratio mortgage like CHMC, AIG etc have decategory_IDed to pay back for the losses to the actual mortgage lender on insured mortgages.
CMHC was founded in 1946 to expand the housing demand in Canada and to make home ownership more accessible for the people who are not so well off. This resulted in a boom in the housing market which lasted for half a century and saw a continuous decrease in the down payments size and also the approach of advantaging investment properties.
The High ratio mortgages are more accepted by the mortgage industry. Such mortgage systems benefit the borrowers who have stable flow of cash but they find it difficult to save for large amount of down payments. It also caters the borrowers who have recently commenced their jobs such as fresh graduates.
Now these insured mortgages can be availed for first and second mortgages as well as for secured credit lines. The borrowers with low and broken credit or with unusual situations of income can get qualified for the loan by contacting a mortgage broker or Canada's mortgage lenders are not related to banks.
The invention of platform for mortgage insurance enabled the securitization process and insured mortgage loans are now used as low risk investment through out the world, for various private as well as institutional investors.
In past, most of the mortgage loans were funded and looked after by CHMC and later, Canadian Mortgage Bond (CMB) program. Securitized them Due to high ratio insurance, the investors are now permitted to buy property which can generate income and has considerably reduced equity. This will increase their returns as due to this advantage. Although such strategies hold inborn risks but still they work as the essential strategies for most investors to generate wealth.