Glossary
Conventional Mortgage
A conventional mortgage is a home loan at 80% or less of the property's value, so mortgage default insurance is not required..
A conventional mortgage is a mortgage whose loan amount is 80% or less of the property's value, so the lender does not need mortgage default insurance on it. In Canada, the dividing line is the loan-to-value ratio: at or below 80% LTV the loan is conventional; above 80% LTV it is a high-ratio mortgage, and default insurance is normally required.
Why the 80% line exists
The rule traces back to federal lending rules. Federally regulated lenders — banks and other institutions supervised under OSFI rules — must hold mortgage default insurance when the loan exceeds 80% of the property's value. CMHC, Sagen and Canada Guaranty provide that coverage, and the borrower funds the premium. When the loan sits at or below 80%, the borrower's own equity is treated as sufficient cushion, so no default insurance premium is charged to the borrower. A lender may still insure low-ratio loans in bulk at its own expense, but that is a portfolio decision and does not appear on the borrower's statement.
Down payment and the two categories
The practical difference shows up at the down payment stage. A down payment of at least 20% produces a conventional mortgage; anything less produces a high-ratio mortgage.
- Conventional (80% LTV or less): no borrower-paid default insurance premium, and the ratio is measured against the property's value rather than the purchase price alone.
- High-ratio (above 80% LTV): default insurance is required with a federally regulated lender, and the premium is typically added to the mortgage balance or paid upfront.
Qualifying for a conventional mortgage
Insurance status does not remove the other tests. The borrower still faces the federal mortgage stress test, which requires qualifying at a higher rate than the contract rate, and must meet the lender's GDS and TDS limits under OSFI's Guideline B-20. Because the loan is smaller relative to the home, those ratios can be easier to satisfy than on a high-ratio file, but income verification, credit history and a property appraisal still apply.
A conventional mortgage also matters later. Because the loan sits at or below 80% LTV, a borrower may be able to add a readvanceable line of credit or refinance up to that ceiling without triggering insurance.
Frequently asked questions
What is the difference between a conventional mortgage and a high-ratio mortgage?
A conventional mortgage is at or below 80% of the property's value, so the borrower pays no mortgage default insurance premium. A high-ratio mortgage sits above 80% LTV and must be insured by CMHC, Sagen or Canada Guaranty when the lender is federally regulated. The insurance protects the lender, not the borrower, but the borrower funds the premium.
How much down payment do I need for a conventional mortgage?
Because a conventional mortgage is 80% or less of value, the down payment is 20% or more of the property's value. That is the dividing line between conventional and high-ratio lending in Canada. Down payment funds must still meet the lender's source-of-funds requirements, and the loan must satisfy the stress test and GDS/TDS limits.
Does a conventional mortgage mean I pay no insurance at all?
It means you are not charged a mortgage default insurance premium, which applies to high-ratio loans. Your lender may still insure low-ratio loans in bulk at its own cost, and you will still pay for property insurance and, where applicable, title insurance. Those are separate products from default insurance.
Sources
Related terms
- High-Ratio Mortgage — A high-ratio mortgage exceeds 80% of a property's value or purchase price, meaning the down payment is under 20%, and it must be insured against default.
- Loan-to-Value Ratio (LTV) — The loan-to-value ratio (LTV) is the size of your mortgage expressed as a percentage of the property's appraised value or purchase price.
- Mortgage Default Insurance — Insurance that protects the lender, not the borrower, when a high-ratio mortgage goes into default and the home sale does not repay the debt.
- Down Payment — A down payment is the portion of a home's purchase price a buyer pays upfront, reducing the amount borrowed through a mortgage.
- Mortgage Stress Test — The federal mortgage stress test is a qualification rule that makes lenders check whether you could afford your mortgage if rates were higher than your contract rate.