Products and terms
Conventional mortgage
A mortgage with a down payment of 20% or more, which doesn't need default insurance.
A conventional mortgage is one where the loan is 80% or less of the property's value. Because the lender has a large equity cushion, default insurance isn't required and no premium is added to the balance.
Conventional doesn't always mean cheapest. Insured mortgages (those with less than 20% down) often carry lower interest rates, because the lender's risk is covered and the loan costs less to fund. A conventional purchase that the lender can still insure in the background is called insurable and is priced in the middle. One that can't be insured at all is uninsured and is priced highest.
So getting to 20% down isn't automatically the right call. You avoid a premium of 2.80% to 4.00% of the loan, and you usually accept a slightly higher rate. On most files, avoiding the premium comes out ahead, but it's worth running the numbers on yours.
Related terms
Mortgage default insurance
Insurance that protects the lender if you default, required with less than 20% down and paid for by you.
Insurable mortgage
A mortgage with 20% or more down that the lender can still insure in the background, priced between insured and uninsured.
Loan-to-value (LTV)
The mortgage as a percentage of the property's value, which decides your insurance, your pricing tier and how much you can borrow.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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