High Ratio Mortgage

When a mortgage exceeds the 75% value of the home it is called high ration mortgage. This mortgage has to be insured by CMHC (Canadian Mortgage and Housing Corporation) that means that the lender will insure their mortgage amount from the CMHC and will pass that insurance cost to you. Every Lenders when doing a high ratio mortgage will get its mortgage money insured. If CMHC does not insure there are other insurance companies that will insure the mortgage. Genworth Financials Canada or Canada Guaranty are also insurers of high ratio mortgage.  All lenders do insure their investments in your home when the stake of risk is higher. This is in case if the borrower goes bankrupt or is unable to pay the mortgage on the house the lender can do a power sale and recover his money. Often these power sales are short sales and the equity in the home is compromised by the lender to recover his cost at the earliest lender will sell it for the price it will sell fast. When the house is sold and the home loan of 60% mortgage amount is recovered the balance is paid by the CMHC to the lender.

Here is the example how it works.

Mr. John Wanted to buy a property of 100,000 he wants to pay only 10% down payments and wants to borrow 90% money from mortgage. (Home Loan Payment) mortgage company approved his mortgage of 90,000 but send the deal to CMHC. CMHC approves the deal and insures the money landers investment. The mortgage is done and closed the applicant takes the possession of the house. After few months due to some personnel reason the occupant is unable to pay his/her mortgage and lender (Home loan Payments) decides to sell the house.  When he goes to the market to sell the same house, it sells for only $60,000 where as the lender paid $90,000 for the mortgage. here the lenders losses $30,000 in investment. in this scenario CMHC kicks in and pays $30,000 to the lender to recover their cost. because the lender did insured the mortgage with CMHC. all the premium charged by the CMHC will be passed to the applicant.

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