Many clients ask me what the difference between a conventional and high ratio mortgage are. They hear it talked about a lot, but don’t understand the difference. Basically, the difference is the amount of down payment you’re going to put down. If you put 20% or more down you qualify for conventional mortgage. One benefit of a conventional mortgage is that mortgage insurance is not normally required, which saves you money. If you are unable to put at least 20% down then you will need a high ratio mortgage. The down side of this is that high ratio mortgages have to be ensured against default and quess who pays the premium for this insurance. The premium is based on how much you put down. The bottom line is the more you put down the less the premium. The premium is usually just added to your loan. This is convenient but it also has the effect of raising your payments and could increase the amortization period. This mortgage insurance premium is usually a surprise to buyers when they go in to look at the final figure they owe for the home they purchased. That’s why it is so important to not spend all the money you saved up when you buy that first home. Give yourself a little “wiggle” room as there is always  a little more cost than you thought.

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This entry was posted on Monday, April 19th, 2010 at 9:24 pm and is filed under Keith Macdonald's Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.