A high ratio mortgage is a type of mortgage where the borrower borrows more than 80% of the homes sale price. The term "high ratio" refers to the difference between the mortgage amount (the loan) and the purchase price (the value) . This spread is more commonly known as the loan-to-value ratio (LTV). If the LTV is 80% or greater, meaning the down payment is 20% or less, the mortgage is high-ratio. Conversely, you’ll have a low-ratio or conventional mortgage if you use a down payment of 20% or more of the purchase price and the LTV falls below 80% .

High-ratio mortgages are fairly common in Canada. They allow borrowers to enter the housing market with a smaller down payment, but they pose an inherently higher risk to lenders. Because high-ratio mortgages mean you’re financing a greater portion of a home’s price, they carry above-average interest rates. However, because high-ratio mortgages are insured against default, they pose less risk to lenders. That allows them to offer lower mortgage interest rates compared to conventional loans.

If you’re applying for a high-ratio mortgage, ensure your finances are as fit as can be. Paying down debt to shrink your total debt service ratio and lower your credit utilization ratio are two ways of convincing lenders to offer you a more competitive interest rate. To avoid a high ratio mortgage, you may want to look for ways to increase your down payment. This could mean restructuring your budget to save more, buying a home later, or looking for a less expensive property.