High Ratio Mortgage Meaning

In the case of examination if an individual scores a particular percentage than he or she is considered as pass in the examination, similarly in the case of mortgage an individual has to pass the down payment test if he or she does not want to come into high ratio mortgage bracket. Under mortgage for housing, an individual has to make a down payment before taking a mortgage, while some people make more down payment while others make less down payments, in the context of these down payments high ratio mortgage term is used. High ratio mortgage refers to that mortgage in which the down payment paid by the borrower is less than 20 percent of the total value of mortgage taken. So for example, if the total value of the mortgage is $100000 and down payment made by the borrower is $18000 then the ratio is 18 percent and therefore it can be termed as high ratio mortgage.

A high ratio mortgage is risky because anyone who is not having enough capital can go to bank or financial institution and take mortgage and when the down payment requirement is high then people having actual requirement and willingness will take the mortgage thus saving banks or financial institution from those people who take mortgage not because of their requirement but to take advantage of lower down payment.

A high ratio mortgage is good option for those buyers who have less cash in hand because majority of people have assets which are not liquid and when those people go to take the mortgage than even 20 percent down payment looks enormous to them because of low liquidity with them and that is where high ratio mortgage comes to rescue. Hence high ratio mortgage has its benefits as well as pitfalls but still, it widely used in developed markets by the banks and financial institutions for mortgages.

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