Putting at least 20% down is commonly associated with avoiding mortgage default insurance in Canada. That is generally correct, but it is not quite the same as saying a conventional mortgage can never be insured. You generally do not need mortgage loan insurance with a conventional mortgage in Canada. A conventional mortgage has a loan-to-value ratio of 80% or less, while mortgage loan insurance is typically required above 80% LTV. However, a lender may still require or obtain insurance on a conventional mortgage in some circumstances.
- Why Conventional Mortgages Usually Do Not Require Mortgage Insurance
- Can a Conventional Mortgage Still Be Insured?
- Who Pays for Insurance If It Is Required?
- Does Putting 20% Down Guarantee You Will Avoid Mortgage Insurance?
- Mortgage Default Insurance Is Not Mortgage Life Insurance
- What Should You Confirm With Your Lender?
- Questions About Mortgage Insurance on Conventional Mortgages
Why Conventional Mortgages Usually Do Not Require Mortgage Insurance
A conventional mortgage in Canada has a mortgage amount of no more than 80% of the property’s lending value. On a straightforward home purchase, reaching that threshold generally means providing at least 20% of the purchase price yourself.
Mortgage loan insurance is typically required when the down payment is below 20%. The federal rules for down payments and mortgage loan insurance explain that this coverage protects the lender if the borrower cannot make the mortgage payments. It does not protect the homeowner.
For example, a $500,000 purchase with $100,000 down leaves a $400,000 mortgage, assuming the purchase price is also the lending value used for the mortgage. The resulting 80% LTV falls within the conventional threshold. By contrast, putting $50,000 down would leave a 90% LTV before any financed insurance premium, making the mortgage high-ratio rather than conventional.
The difference between those two structures is explored more directly in conventional vs. high-ratio mortgages.
Can a Conventional Mortgage Still Be Insured?
It can. Conventional and uninsured are not interchangeable terms.
CMHC defines a conventional mortgage by its LTV, not by the absence of insurance. Its mortgage loan insurance premium schedule includes coverage at LTV ratios of 80% and below, including bands of 75.01% to 80%, 65.01% to 75%, and 65% or less.
A lender may also require mortgage loan insurance even when you have a 20% down payment. Federal consumer guidance identifies situations involving self-employment or poor credit history as examples where this may happen.
This overlap is why conventional and insured mortgages should be treated as separate classifications. “Conventional” describes the mortgage’s LTV. “Insured” describes whether mortgage default insurance covers the lender.
Who Pays for Insurance If It Is Required?
Where mortgage loan insurance is required and the premium is passed on to you, the premium can generally be paid upfront or added to the mortgage. Adding it to the mortgage increases the principal on which you pay interest.
The premium varies with the LTV. Under the current CMHC mortgage insurance premium schedule, standard owner-occupied homeowner premiums range from 0.60% of the loan amount at an LTV of 65% or less to 4.00% at an LTV of 90.01% to 95%. A 4.50% rate applies within the 90.01% to 95% band for certain non-traditional down payments.
That cost is separate from the mortgage interest rate. If the premium is financed, it becomes part of the amount being repaid rather than an expense that disappears simply because it was not paid in cash at closing.
Does Putting 20% Down Guarantee You Will Avoid Mortgage Insurance?
A 20% down payment generally removes the requirement for mortgage loan insurance that arises from having a high-ratio mortgage. It does not guarantee that no insurance will be attached to the loan.
The more precise way to look at the threshold is through LTV. The amount needed to reach conventional status is explained in conventional mortgage down-payment requirements. Once the mortgage is at or below 80% LTV, mandatory high-ratio insurance normally falls away, but lender-specific circumstances can still result in insurance being required.
If avoiding a borrower-paid insurance premium is important to your purchase budget, confirm the insurance status directly with the lender rather than relying solely on the size of your down payment.
Mortgage Default Insurance Is Not Mortgage Life Insurance
The word “insurance” can create another source of confusion. Mortgage default insurance is different from the optional life, disability, critical illness or job-loss insurance that may be offered alongside a mortgage.
Optional mortgage insurance products are designed to provide specified benefits when events covered by the policy occur. They are not the insurance that determines whether a high-ratio mortgage satisfies mortgage default insurance requirements. You do not need to purchase these optional products simply because you have a conventional mortgage.
A lender offering optional mortgage life insurance through a federally regulated institution must obtain your express consent. Mortgage loan insurance is different because it protects the lender against default and can be required as part of the mortgage financing itself.
What Should You Confirm With Your Lender?
Before accepting a conventional mortgage, check whether the loan will be insured and whether any insurance premium will be charged to you. Do not assume that “conventional” on its own answers either question.
If insurance is being included, find out why it applies, how much the premium is and whether it will be paid upfront or incorporated into the mortgage. Those details let you compare the actual financing cost rather than relying on the conventional label alone.
Questions About Mortgage Insurance on Conventional Mortgages
Can a lender insure a mortgage with more than 20% down?
Yes. Mortgage loan insurance exists at LTV ratios below 80%, so having more than 20% equity does not make insurance impossible.
Does mortgage loan insurance protect my down payment?
No. Mortgage loan insurance protects the lender against losses if you default on the mortgage. It does not reimburse your down payment.
Can you decline mortgage default insurance if the lender requires it?
You cannot simply remove required mortgage default insurance while keeping financing that depends on that coverage. Your financing would need to satisfy the lender’s requirements without it.
Do you need mortgage life insurance with a conventional mortgage?
No. Mortgage life insurance is an optional product and is separate from mortgage default insurance.
