What Is a High Debt Ratio
Loan?

High-debt ratio loans have become popular in the mortgage business. They’re particularly beneficial for people who have a steady income and cash flow but do not have enough money for a large down payment, or for those who can afford the down payment but choose to spend less and keep more cash on hand. Conventional mortgages require a 20–25% down payment, as lenders traditionally will not loan more than 75 – 80%, but it’s still possible to obtain high-debt ratio loans if you don’t have enough to meet that requirement. Loans for those with a high debt-to-income ratio include as little as a 5% down payment. In a conventional mortgage, a $250,000 home would require a down payment of $65,500 (or 25%). With a high debt-to-income ratio loan, the down payment can be as little as $12,500 (or 5%).

The mortgage crisis of 2008 brought these types of loans into question, and it is now a requirement of most lenders for the borrower to purchase mortgage insurance, which protects the lender from default. Mortgage insurance can be purchased through Canada Mortgage and Housing Corporation (CMHC), Genworth Canada and Canada Guaranty.