Since there is sometimes no way around using industry jargon, here I decode two bits of Mortgage Lingo that could certainly use a little explanation.
Yes, this is a classic use of jargon, and I am guilty of it myself sometimes. Technobabble!
80% LTV means 80% loan to value — that is, the percentage of your home’s purchase price that is mortgage; ergo you have a 20% down payment.
So if you are buying a $500,000 home with $100,000 down payment, your required mortgage will be exactly $400,000.
That is exactly 80% of your purchase price. In this case, mortgage brokers and lenders will say this application has an 80% loan to value, or LTV.
Anytime a mortgage borrower puts up less than 20% down payment, we call this a “hi-ratio” mortgage. This means the mortgage amount, as a percentage of the cost of the home, is high. The Loan to Value ratio will be greater than 80%.
For homes costing under $500,000, the borrower can put up as little as 5% down payment, making that a 95% LTV mortgage.
Borrowers with less than 20% down payment must purchase default insurance — commonly referred to as “CMHC insurance”. CMHC is short for Canada Mortgage Housing Corporation, a branch of the federal government.
CMHC is not a monopoly, however. There are two other mortgage insurers – Genworth Canada and Canada Guaranty. Most lenders align to one or two of these three.
So when this insurance is purchased, there is no repayment risk to your mortgage lender. No matter what happens — even if you do a runner, they WILL get paid.
Typically it’s one of two reasons.
In both cases, the mortgage lender wants to leave a good chunk of equity in the property — so that if the borrowers do not meet their obligations, the lender can safely recoup their loan when they go to sell the property.
A lender might max out the loan to value ratio at 65% or even lower for other reasons — for example:
I find a little explanation goes a long way with industry terms. Hope that explains things, but of course questions are always welcome.