High-Ratio Mortgage

A high-ratio mortgage is a type of mortgage where the borrower makes a down payment that is less than 20% of the property’s purchase price, resulting in a loan-to-value (LTV) ratio higher than 80%. Because the borrower is financing more of the property’s cost and has less equity upfront, the lender perceives a higher risk.

To mitigate this risk, lenders typically require the borrower to purchase mortgage insurance, known as private mortgage insurance (PMI) in the United States or mortgage default insurance in other regions like Canada. This insurance protects the lender in case the borrower defaults on the mortgage. High-ratio mortgages are common among first-time homebuyers who may not have a large down payment saved.