What defines a high ratio mortgage?

What defines a high ratio mortgage?

• A. Less than 20% down payment that requires mortgage insurance
• B. More than 20% down payment without insurance
• C. Only applicable for investment properties
• D. Only applicable if the buyer is 55 or older

Answer: (A)

A high ratio mortgage is characterized by a borrower making a down payment of less than 20% of the property's purchase price. This type of mortgage is generally associated with a higher level of risk for lenders because the borrower has less equity in the property. Consequently, lenders typically require mortgage insurance to protect themselves in case the borrower defaults. Mortgage insurance reduces the lender’s risk and makes it possible for buyers to qualify for a loan even with a smaller down payment. The other options do not accurately capture the definition of a high ratio mortgage. For instance, a down payment of more than 20% indicates a conventional mortgage, which does not require mortgage insurance. Additionally, high ratio mortgages are not limited to investment properties or to borrowers over the age of 55; they apply broadly to residential buyers using a minimal down payment.

A high ratio mortgage is characterized by a borrower making a down payment of less than 20% of the property's purchase price. This type of mortgage is generally associated with a higher level of risk for lenders because the borrower has less equity in the property. Consequently, lenders typically require mortgage insurance to protect themselves in case the borrower defaults. Mortgage insurance reduces the lender’s risk and makes it possible for buyers to qualify for a loan even with a smaller down payment.

The other options do not accurately capture the definition of a high ratio mortgage. For instance, a down payment of more than 20% indicates a conventional mortgage, which does not require mortgage insurance. Additionally, high ratio mortgages are not limited to investment properties or to borrowers over the age of 55; they apply broadly to residential buyers using a minimal down payment.