High Ratio (aka: High Loan-to-Value Mortgage)
This type of mortgage allows you to borrow more than 80% of the property’s purchase price (or the appraised value, whichever is less). However, to take advantage of this option you will need to pay for mortgage loan default insurance. This insurance is actually legally required by your lender, but the lender passes on the cost to you.
The more you put toward your down payment, the less you’ll be charged. Calculating your particular mortgage default insurance can be done using the following figures:
- 5% – 9.99% down payment: 4.00%
- 10% – 14.99% down payment: 3.10%
- 15% – 19.99% down payment: 2.80%
Example: If you’re putting a 10% down payment on a $600,000 home purchase ($60,000), you’ll have a mortgage of $540,000. Based on a 3.10% mortgage default insurance rate (since you fall within the 10% – 14.99% category), your insurance premium would be $16,740 ($540,000 x 3.10%). This amount would then be added to your mortgage amount, which means you’d have a total mortgage amount of $556,740. Mortgage default insurance is repaid over the life of the mortgage.