A conventional mortgage in Canada is any mortgage where the borrower puts down 20% or more of the purchase price. Because the lender has a substantial equity cushion, mortgage default insurance from CMHC, Sagen, or Canada Guaranty is not required. This makes conventional mortgages different from high-ratio (insured) mortgages in cost structure, rate pricing, qualification rules, and amortization options.
Understanding when to pursue a conventional mortgage versus buying sooner with a smaller down payment is one of the most consequential financial decisions in Canadian homeownership.
Conventional vs High-Ratio Mortgage: Side by Side
| Feature | Conventional Mortgage | High-Ratio Mortgage |
|---|---|---|
| Down payment | 20% or more | 5%–19.99% |
| Mortgage default insurance | Not required | Mandatory |
| Insurance premium | $0 | 2.40%–4.00% of mortgage |
| Premium added to mortgage? | N/A | Yes — increases balance |
| PST on insurance premium | N/A | Yes — in ON, QC, SK, MB (details) |
| Maximum amortization | 30 years (25 for insurable) | 25 years |
| Purchase price cap | No limit | $1,499,999 (insured) |
| Stress test | Yes — qualifying rate | Yes — qualifying rate |
| Interest rate | May be slightly higher | Often lowest available |
| LTV at purchase | Up to 80% | Up to 95% |
The Three Categories of Canadian Mortgages
The mortgage industry uses three terms that are often confused:
| Category | Down Payment | Insurance | Who Pays Premium | Lender Risk |
|---|---|---|---|---|
| Insured (high-ratio) | 5%–19.99% | Mandatory (CMHC/Sagen/CG) | Borrower | Zero — insurer covers default |
| Insurable | 20%+ | Lender purchases insurance (optional) | Lender (built into rate) | Zero — insurer covers default |
| Uninsured (conventional) | 20%+ | None | N/A | Full default risk on lender |
Why this matters for rates:
- Insured mortgages get the lowest rates because lenders can sell them into CMHC’s NHA MBS program (see how mortgage-backed securities work)
- Insurable mortgages get nearly as good rates — the lender buys insurance voluntarily to access lower-cost funding
- Uninsured mortgages (over $1M, or 30-year amortization) get the highest rates because the lender keeps all the risk and cannot securitize through government programs
| Purchase Price | Down Payment | Mortgage | Category | Typical Rate Premium vs Insured |
|---|---|---|---|---|
| $400,000 | 5% ($20,000) | $380,000 | Insured | Baseline (lowest) |
| $600,000 | 20% ($120,000) | $480,000 | Insurable | +0.00%–0.10% |
| $600,000 | 20% ($120,000), 30-yr am | $480,000 | Uninsured | +0.10%–0.25% |
| $1,200,000 | 20% ($240,000) | $960,000 | Uninsured | +0.10%–0.25% |
| $2,000,000 | 20% ($400,000) | $1,600,000 | Uninsured | +0.15%–0.30% |
How Much You Save by Avoiding CMHC Insurance
Total CMHC Premium Savings
| Purchase Price | 5% Down (Insured) | Premium (4.00%) | Total Mortgage | 20% Down (Conventional) | Mortgage | Premium Saved |
|---|---|---|---|---|---|---|
| $400,000 | $20,000 | $15,200 | $395,200 | $80,000 | $320,000 | $15,200 |
| $500,000 | $25,000 | $19,000 | $494,000 | $100,000 | $400,000 | $19,000 |
| $600,000 | $35,000 | $22,600 | $587,600 | $120,000 | $480,000 | $22,600 |
| $800,000 | $55,000 | $29,800 | $774,800 | $160,000 | $640,000 | $29,800 |
| $1,000,000 | $75,000 | $37,000 | $962,000 | $200,000 | $800,000 | $37,000 |
Plus PST savings in applicable provinces:
| Province | PST on $19,000 Premium ($500K Home) | PST on $37,000 Premium ($1M Home) |
|---|---|---|
| Ontario (8%) | $1,520 | $2,960 |
| Quebec (9%) | $1,710 | $3,330 |
| Saskatchewan (6%) | $1,140 | $2,220 |
| Manitoba (7%) | $1,330 | $2,590 |
| Other provinces | $0 | $0 |
Interest Savings from Lower Mortgage Balance
A conventional mortgage also means a smaller mortgage balance — you borrow less, so you pay less interest over the life of the loan:
| Scenario | 5% Down (Insured) | 20% Down (Conventional) | Difference |
|---|---|---|---|
| Purchase price | $600,000 | $600,000 | — |
| Mortgage | $587,600 (incl. premium) | $480,000 | $107,600 less |
| Rate | 4.50% | 4.60% | +0.10% higher |
| Amortization | 25 years | 25 years | — |
| Monthly payment | $3,237 | $2,690 | $547/month less |
| Total interest (25 years) | $383,400 | $327,000 | $56,400 saved |
| Total cost (principal + interest) | $971,000 | $807,000 | $164,000 saved |
Even with a slightly higher interest rate, the conventional mortgage saves significantly because the balance is so much lower.
The 30-Year Amortization Advantage
One of the most significant advantages of a conventional mortgage is access to a 30-year amortization (vs 25 years maximum for insured mortgages, with some exceptions for first-time buyers).
| Amortization | Monthly Payment ($480K at 4.60%) | Total Interest | Extra Interest vs 25-yr |
|---|---|---|---|
| 25 years | $2,690 | $327,000 | — |
| 30 years | $2,472 | $410,100 | +$83,100 |
Monthly savings: $218/month with 30-year amortization.
Total cost: You pay $83,100 more in interest over the life of the mortgage. But many borrowers choose the 30-year amortization for cash flow flexibility and invest the $218/month difference — which at 6% average annual return would grow to approximately $92,000 over 25 years, more than offsetting the extra interest.
Who benefits from 30-year amortization:
| Situation | Benefit |
|---|---|
| Self-employed with variable income | Lower mandatory payment provides a buffer |
| Investor with higher-yield opportunities | Deploy savings into higher-return investments |
| High cost-of-living city | Lower payment improves debt service ratios |
| New homeowner wants flexibility | Can always make extra payments to match a 25-year schedule |
When a Conventional Mortgage Makes Sense
| Scenario | Why Conventional Is Better |
|---|---|
| You have 20%+ saved | Avoid $15,000–$37,000+ in CMHC premiums |
| Buying over $1,000,000 | Insurance is not available — 20% is mandatory |
| Want 30-year amortization | Only available with conventional (with exceptions) |
| Want to avoid PST on insurance | Relevant in ON, QC, SK, MB |
| Investment property | Insurance has tighter restrictions for rentals |
| Second home | May not qualify for insured programs |
| Building equity faster | Higher initial equity + no premium on balance |
When a High-Ratio (Insured) Mortgage Makes Sense
| Scenario | Why Insured Is Better |
|---|---|
| You have 5%–15% saved | Get into the market sooner; time in market matters |
| Home prices are rising faster than you can save | Waiting to save 20% could cost more than the insurance premium |
| You can get a lower rate | Insured rates are often the lowest available |
| You qualify for first-time buyer programs | HBP, FHSA, and first-time buyer incentives help with smaller down payments |
| Rent is comparable to mortgage payments | Buying sooner means building equity instead of paying rent |
The “Should I Wait to Save 20%?” Analysis
| Factor | Buy Now at 5% Down | Wait 2 Years to Save 20% Down |
|---|---|---|
| Purchase price (now) | $600,000 | — |
| Purchase price (in 2 years at 3% appreciation) | — | $636,540 |
| Down payment | $30,000 | $127,308 |
| Mortgage (incl. premium) | $592,800 | $509,232 |
| CMHC premium | $22,800 | $0 |
| 2 years of rent paid while saving | $0 | $48,000 ($2,000/month) |
| 2 years of equity built | ~$20,000 | $0 |
| Net cost of waiting | — | Higher price + rent paid – premium saved |
In many Canadian markets, 2 years of home price appreciation plus rent costs exceed the CMHC premium saved. But this depends entirely on your local market and how quickly you can save.
Conventional Mortgage Qualification
Stress Test
All borrowers — insured or conventional — must pass the mortgage stress test:
| Test | Rate Used |
|---|---|
| Qualifying rate | Higher of: contract rate + 2% OR 5.25% floor |
| Example: 4.50% contract rate | Qualify at 6.50% (4.50% + 2%) |
Debt Service Ratios
| Ratio | Limit | What It Measures |
|---|---|---|
| GDS (Gross Debt Service) | 39% of gross income | Housing costs ÷ income |
| TDS (Total Debt Service) | 44% of gross income | All debt obligations ÷ income |
Minimum Down Payment Rules (Federal)
| Purchase Price | Minimum Down Payment | Insurance Required? |
|---|---|---|
| Up to $500,000 | 5% | Yes — high-ratio |
| $500,001–$1,499,999 | 5% on first $500K + 10% on remainder | Yes — high-ratio |
| $1,500,000 and above | 20% | No — must be conventional |
For properties over $1,500,000, a conventional mortgage is not a choice — it is the only option.
Down Payment Sources for a Conventional Mortgage
| Source | Eligible? | Notes |
|---|---|---|
| Personal savings | Yes | 3 months bank statements |
| RRSP Home Buyers’ Plan | Yes | Up to $60,000/person; must be first-time buyer |
| FHSA | Yes | Tax-free; first-time buyers only |
| Gift from immediate family | Yes | Signed gift letter; no repayment |
| Sale of existing property | Yes | Equity from current home |
| Investments | Yes | 3 months account statements |
| Borrowed (HELOC, LOC, loan) | Yes, with conditions | Added to debt ratios; must be declared |
| Inheritance | Yes | Documentation from estate |
Gifted down payment and conventional mortgages: For high-ratio (insured) mortgages with less than 20% down, the borrower must contribute at least a portion of their own funds in some cases. For conventional mortgages, 100% of the down payment can come from a gift — the key is that 20% equity exists regardless of the source.
Conventional Mortgage vs Collateral vs Standard Registration
Do not confuse a “conventional mortgage” (20%+ down, no insurance) with a “conventional” mortgage registration type:
| Term | What It Means |
|---|---|
| Conventional mortgage | 20%+ down payment; no CMHC insurance required |
| Conventional registration | Standard mortgage registration — the registered amount equals the mortgage balance |
| Collateral registration | Mortgage registered for more than the amount borrowed (up to 125%) for future flexibility |
A conventional (20%+ down) mortgage can use either registration type. TD Bank, for example, registers all mortgages as collateral charges regardless of down payment size. See collateral vs conventional mortgage registration for the differences.
Summary: Total Cost Comparison
$600,000 Purchase — Total Cost Over 25 Years
| Factor | 5% Down (Insured) | 20% Down (Conventional) |
|---|---|---|
| Down payment | $35,000 | $120,000 |
| Mortgage balance | $587,600 | $480,000 |
| CMHC premium (in mortgage) | $22,600 | $0 |
| PST on premium (Ontario) | $1,808 cash | $0 |
| Interest rate | 4.50% | 4.60% |
| Monthly payment | $3,237 | $2,690 |
| Total payments (25 years) | $971,100 | $807,000 |
| Total interest paid | $383,500 | $327,000 |
| Total cost (down payment + interest + premium + PST) | $420,308 | $447,000 |
| Total cost (all cash out of pocket over 25 years) | $1,008,108 | $927,000 |
Result: The conventional mortgage saves approximately $81,000 in total cost — but requires $85,000 more cash upfront. The tradeoff is liquidity now versus savings over time.
Related Resources
- How Much Down Payment Do You Need?
- Deposit vs Down Payment Explained
- Mortgage Default Insurance Explained
- PST on Mortgage Default Insurance
- Collateral vs Conventional Mortgage Registration
- Mortgage-Backed Securities in Canada
- Mortgage Stress Test Explained
- Mortgage Calculator
- Down Payment Calculator