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Difference between High Ratio and Conventional Mortgage

General 17 Feb

When lender refers the term name loan to value(LTV) ratio, that means it could be either high ratio or conventional ratio.

Firstly, loan to value(LTV) means value of mortgage in relation to total value of property. For example if your property value is $500000 and your mortgage value is $400000, your loan to value(LTV) is $400000/$500000*100=80%.This is clearly mean to down payment paid by you is 20% a total $100000.

High Ratio Mortgage means your LTV is more than 80% that means your down payment is less than 20%.If you are doing less than 20% down payment, you are required to have Mortgage default insurance by law in order to help lender to insure their money when you are not able to maintain mortgage payments regularly.

In contrast to that, Conventional Mortgage doesn’t require any mortgage default insurance as you are doing more than 20% down payment. LTV ration is less than 80%.

Above terms apply only when you purchasing a property. But if you are refinancing your home or borrowing against your equity, lenders can not allow you to lend money which has more than 80% loan to value ratio. In other word if you want to refinance of equity take out, you need to own 20% or more of your property value.

If you are purchasing rental property, you are required to put 20% or more down payment because you can not borrow high ratio mortgage on rental property.

High ratio mortgage and conventional mortgage also effect your rate of interest as most lender incentives high ratio buyers to work with then my offering lower interest

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There are several categories in terms of high ratio and conventional mortgage in terms of borrowing powers. For more information on this, please send me en email and Dominion Lending Center will happy to help you.