Conventional vs High-Ratio Mortgage in Canada

When you compare a conventional vs high-ratio mortgage in Canada, everything turns on one number: your down payment. Put down at least 20% of the purchase price and you have a conventional mortgage — no mortgage default insurance required. Put down less than 20% and you have a high-ratio mortgage, which the lender must insure through CMHC or a private insurer, with the premium passed to you. Same house, same lender, two different cost structures.

What separates a conventional mortgage from a high-ratio mortgage

Lenders describe mortgages by their loan-to-value ratio, or LTV — the size of the loan measured against the value of the property. Borrow 80% or less of that value and the loan is conventional. Borrow more than 80% and it becomes high-ratio, because less of your own money is sitting in the property as a cushion.

The distinction is not cosmetic. Federal rules treat a high-ratio mortgage as the riskier loan, so it arrives with extra conditions attached: mandatory default insurance, a lower amortization ceiling, and a price cap on the homes that can be insured at all. Those conditions shape both what you pay and what you can qualify for.

How mortgage default insurance works on a high-ratio mortgage

When your down payment is under 20%, a federally regulated lender cannot hold that mortgage on its books without insuring it. In practice the coverage comes from CMHC, the Canada Mortgage and Housing Corporation, or from a private insurer operating in the same market. The premium is charged as a percentage of the loan amount, and that percentage climbs as your down payment shrinks.

You pay the premium, not the lender. Most borrowers have it added to the mortgage balance, which means it gets financed and you pay interest on it across the amortization. Paying it in cash at closing is also possible and lowers the amount you borrow. For the full picture of who does what, read mortgage default insurance in Canada, explained.

Conventional and high-ratio mortgages, side by side

Feature	Conventional mortgage	High-ratio mortgage
Down payment	20% or more of the purchase price	Less than 20%
Loan-to-value	80% or lower	Above 80%
Default insurance	Not required	Required for federally regulated lenders
Who pays the premium	No premium applies	You, usually financed into the mortgage
Maximum amortization	Often up to 30 years	Typically capped at 25 years
Home price limits	No insured-price cap	Limited to homes below a federal price cap
Refinance and HELOC access	Generally broader	More restricted above 80% LTV

The premium is a one-time charge tied to your LTV and amortization, so a smaller down payment means a larger premium. Confirm the current premium tiers on the CMHC website before you build them into your budget, and remember that the premium is only part of what a high-ratio mortgage costs you.

Qualifying: the stress test, GDS, and TDS

Both mortgage types clear the same federal mortgage stress test. You must show you can carry the payments at the higher of your contract rate plus two percentage points, or the published qualifying-rate floor, whichever is greater. That floor changes from time to time, so confirm the current figure with OSFI or your lender. The stress test explained walks through the arithmetic.

Lenders also look at two ratios. GDS, the gross debt service ratio, compares your housing costs to gross income. TDS, the total debt service ratio, folds in your other debts — car loans, credit cards, student loans. These limits flow from OSFI Guideline B-20, the underwriting expectations federally regulated lenders follow. Because a high-ratio borrower starts with less equity and carries an insurance premium inside the balance, the same income usually supports a smaller maximum mortgage. See GDS and TDS ratios for the details.

Getting to 20% down: where the money can come from

Closing the gap between a high-ratio and a conventional mortgage is a savings problem, and Canada has registered accounts built for it:

• RRSP Home Buyers' Plan (HBP) — withdraw from your RRSP to buy or build a qualifying first home, subject to CRA withdrawal limits and a repayment schedule. Read the Home Buyers' Plan explained.
• First Home Savings Account (FHSA) — contributions may be deductible and qualifying withdrawals are designed to be tax-free. Confirm the current rules with the CRA before you contribute. See the FHSA explained.
• A documented gift — many lenders accept down payment funds gifted by an immediate family member, with a signed letter.
• Equity from a previous home — proceeds from selling an existing property.

Federal rules set a minimum down payment below the 20% mark, and that percentage steps up on higher-priced homes. Confirm the current tiers with CMHC or on Canada.ca before you plan a purchase.

Why a conventional mortgage gives you more room later

A conventional mortgage keeps your LTV at or under 80%, which is the doorway to the cheapest borrowing against your home. At that level you can often refinance or add a home equity line of credit without triggering default insurance. An insured high-ratio mortgage does not have the same freedom — refinancing an insured loan above 80% LTV is not something the insurer will cover, so the options narrow. A home equity line of credit is worth understanding before you need one, not after.

Which one fits your situation

If you can reach 20% without emptying your emergency savings, borrowing at high interest rates, or delaying your purchase by years, a conventional mortgage avoids the insurance premium entirely and keeps your future borrowing flexible. If 20% would take a long time to assemble, a high-ratio mortgage gets you into a home sooner, and you can often move to a conventional structure at renewal as the balance falls and your LTV drops below 80%.

Run your own numbers rather than guessing. Compare what each option does to your monthly payment, your total interest, and the cash you have left after closing — then confirm the current rules with your lender before you commit.