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If you have a down payment that is less than 20% of the value of the home, the mortgage is considered high ratio. Because the loan-to-value ratio is over 80%, you are required, by law, to get mortgage default insurance. The fee for the insurance is included in the monthly mortgage payments. Just because you’re paying for “default insurance” doesn’t mean it’s there to help you. It protects the lender in case you default on the mortgage.

Sometimes, it makes more sense to get a high-ratio mortgage with mortgage default insurance than wait until you can save up a 20% down payment. Even those who have a 20% down payment will sometimes get a high-ratio mortgage, holding back some of the down payment to help with closing costs, an emergency fund, or to set up their new home.

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