What is High Ratio Mortgage Insurance (HRMI)? 2024 guide

Don't have a 20% down payment saved up for your dream home? Worry not! High Ratio Mortgage Insurance (HRMI) is here to help.

This guide breaks down how HRMI can turn your home-buying dreams into reality, even with less than 20% down. Dive in to discover how it works, its benefits, and insights on providers like CMHC, Sagen, and Genworth.

Use our free tool to get the best mortgage insurance quotes in the market based on your unique needs and budget from Canada's top providers right here.

What is a high ratio mortgage?

A high ratio mortgage in Canada is when the borrower's down payment is less than 20% of the home's purchase price, requiring mortgage loan insurance.

For example, if you buy a $500,000 home and make a $75,000 down payment (15%), your mortgage would be $425,000. Since the down payment is under 20%, it's a high ratio mortgage, necessitating insurance to protect the lender in case of default.

This insurance premium can be paid upfront or added to the mortgage payments.

What is a high ratio mortgage insurance?

High ratio mortgage insurance is a type of insurance that protects lenders against the risk of mortgage default when a borrower makes a down payment of less than 20% of the purchase price of a home.

This means the loan-to-value (LTV) ratio is greater than 80%. It essentially acts as a safety net for lenders, minimizing their potential losses if the borrower stops making payments.

Here are some key points about HRMI:

• Who needs it: HRMI is mandatory for most conventional mortgages with a down payment below 20%. This is because lenders consider such loans riskier due to the borrower's smaller stake in the property.

• Benefits: HRMI allows borrowers to enter the housing market earlier even if they don't have the full 20% down payment. This can be helpful for first-time buyers or those in high-cost housing markets.

• Costs: The borrower typically bears the cost of HRMI in the form of a monthly premium. The premium amount is calculated as a percentage of the outstanding loan balance and varies depending on the loan-to-value ratio and your credit score.

• Cancellation: Once your LTV ratio falls below 80% (usually through increased equity due to housing market appreciation or principal payments), you may be eligible to cancel HRMI, thereby reducing your monthly mortgage payment.

Before choosing any mortgage insurance plan, make sure to compare different plans to get a better idea of what's out there. You can use our free tool below to explore the best plans and get the best deals on your insurance.

The best mortgage life insurance

Compare deals now

What are the pros and cons of high ratio mortgage insurance?

HRMI can be a useful tool for those who want to buy a home before they have saved a 20% down payment. Weighing its pros and cons carefully can help you make an informed decision.

Pros of high ratio mortgage insurance (HRMI)

High ratio mortgage insurance allows you to buy a home sooner with a lower down payment. This can be especially beneficial for first-time buyers or those in expensive housing markets where saving a 20% down payment can be challenging.

Here are some other benefits:

• Lower interest rates: Some lenders offer slightly lower interest rates on mortgages with HRMI compared to conventional mortgages with no insurance. This is because the insurance mitigates their risk.

• Increased access to credit: HRMI can make you eligible for mortgages you might not qualify for otherwise, especially if your credit score is not perfect.

Also, knowing they are protected against potential defaults can give lenders the confidence to approve more loans, potentially increasing the overall availability of mortgages.

Cons of high ratio mortgage insurance (HRMI)

You, the borrower, pay the monthly premiums for HRMI, which adds to your total mortgage payment. These premiums can be significant, especially for high LTV ratios and/or lower credit scores. Other cons of HRMI include:

• Less equity upfront: With a smaller down payment, you build equity in your home at a slower pace. This can limit your financial flexibility and make it harder to refinance later.

• No benefit to you: HRMI protects the lender, not you. If you default on your mortgage, you are still responsible for the outstanding loan balance, even if the insurance covers the payments to the lender.

• Potential cancellation fees: Some HRMI policies have cancellation fees if you cancel before reaching the 80% LTV ratio requirement.

Additionally, HRMI is generally not available for jumbo loans (loans exceeding certain limits) or certain types of properties.

High ratio mortgages vs. conventional mortgages

HRMI differs from conventional mortgages in a lot of ways. Here are the major differences between these two:

Feature	High Ratio Mortgages	Conventional Mortgages
Down payment	Less than 20% of purchase price	At least 20% of purchase price
Loan-to-value (LTV) ratio	Greater than 80%	Up to 80%
Mortgage insurance	Required (paid by borrower)	Not required
Interest rates	May be slightly higher	May be lower
Qualifying	Easier, especially for first-time buyers	More difficult, especially for first-time buyers
Pros	Buy a home sooner with less down payment Slightly lower interest rates Increased access to credit	Lower total cost (no premiums) Faster equity build-up Not liable for premiums if default
Cons	Increases total cost (premiums) Slower equity build-up Still liable for the loan if default Potential cancellation fees Not available for all loans	Requires a larger down payment More difficult to qualify

Whatever plan you choose, it's important to weigh your options. You can do it right here using our free tool below. Simply click the button below and compare free mortgage insurance quotes based on your budget. It's 100% free, instant, and online.

Compare mortgage life insurance in seconds

Get your mortgage life insurance quote

How does high ratio mortgage insurance work in Canada?

In Canada, HRMI operates slightly differently than in other countries. Here's a breakdown of how it works and its benefits for Canadians:

1. Down payment: Similar to other countries, HRMI is mandatory for Canadian mortgages with a down payment of less than 20% of the purchase price.
2. Insured lenders: Unlike a private insurance system, HRMI in Canada is provided by government-backed insurers like CMHC (Canada Mortgage and Housing Corporation) and Sagen Mortgage Insurance. This ensures stability and affordability for borrowers.
3. Premium calculation: Premiums are based on the loan-to-value (LTV) ratio and your credit score. LTVs between 80% and 95% have higher premiums than those between 65% and 79%. Better credit scores lead to lower premiums.

Benefits for Canadians

HRMI makes it easier for Canadians, especially first-time buyers, to enter the housing market without saving a large down payment. This promotes financial inclusion and helps stimulate the housing market.

Here are some other benefits:

• Due to government backing, HRMI premiums in Canada are generally lower than private mortgage insurance in other countries. This translates to more affordable mortgages for borrowers.
• Government-backed insurers provide stability and security to the system, minimizing risks for both lenders and borrowers.
• HRMI options are available for various property types, including single-family homes, condos, and even manufactured homes.

What are some options for high ratio mortgage insurance in Canada?

When it comes to HRMI in Canada, you have three main government-backed providers to choose from:

1. Canada Mortgage and Housing Corporation (CMHC)

CMHC is the largest and most well-known HRMI provider in Canada, holding a dominant market share. It offers a variety of HRMI options for different types of properties and down payments.

CMHC high ratio mortgage insurance allows for flexible repayment options and offers tools to help manage your mortgage. Its lending guidelines can be stricter compared to other providers though.

2. Sagen

Sagen is more flexible than CMHC in terms of lending guidelines, potentially approving borrowers with lower credit scores or higher debt-to-income ratios. It sometimes offers lower premiums compared to CMHC, especially for higher down payments. That said, Sagen's product range is not as extensive as CMHC's.

3. Genworth Canada

Genworth is the only private HRMI provider in Canada, offering products that may be suitable for borrowers who don't qualify for CMHC or Sagen. It has unique products like Genworth First Time Homebuyer Mortgage, which can be attractive for certain situations. Genworth's premiums tend to be higher than CMHC or Sagen's — be mindful of that.

How much does HRMI cost?

In Canada, high ratio mortgage insurance premiums vary depending on several factors, including:

• Loan-to-Value (LTV) ratio: The higher the percentage of the purchase price you borrow (meaning the lower your down payment), the higher the premium. For example, CMHC's premium for a 20% down payment is 2.40%, while it jumps to 4.00% for a 5% down payment.
• Credit score: Borrowers with good credit scores (typically above 680) will qualify for lower premiums than those with lower credit scores.
• Type of property: Premiums may be slightly higher for certain types of properties, such as condos or manufactured homes.
• Term of the mortgage: Premiums are typically lower for shorter mortgage terms.

Here's a table summarizing the typical HRMI premiums charged by CMHC, the largest provider in Canada:

Loan-to-Value Ratio	Premium on Total Loan
Up to and including 65%	0.60%
Up to and including 75%	1.70%
Up to and including 80%	2.40%
Up to and including 85%	2.80%
Up to and including 90%	3.10%
Up to and including 95%	4.00%

It's important to get personalized quotes as premiums vary from one person to another, and from one provider to another. You can quickly compare mortgage insurance quotes right here using our free comparator below.

The best mortgage life insurance

Compare deals now

High Ratio Mortgage Insurance calculator

There are multiple high ratio mortgage insurance calculators available online, each with its own interface and options.

CMHC Mortgage Calculator is a good example. This calculator is a simple tool that allows you to estimate your monthly mortgage payment, including HRMI premiums, based on your purchase price, down payment, interest rate and amortization period.

Before using any calculator, it's important to gather the following information:

• The purchase price of the home
• Down payment amount
• The interest rate on your mortgage
• Amortization period (the length of your mortgage)
• Your credit score (This may not be required for all calculators, but it will give you a more accurate estimate of your premium.)

Once you have this information, you can simply enter it into the calculator and click "Calculate." The calculator will then show you your estimated monthly mortgage payment, including the HRMI premium.