Mortgage Basics

Conventional Mortgages in Canada

Conventional Mortgages in Canada
Written by
  • nesto
| Apr 13, 2022
Reviewed, May 8, 2024
Share:

Table of contents

    A conventional mortgage is a loan-to-value (LTV) ratio mortgage where you pay down 20% or more of the property’s value and get a loan value equivalent to at least 80% of the property purchase price. This means that to qualify for a conventional loan in Canada, you must have a minimum of 20% of the property’s purchase price. The 80% provided by your mortgage lender is usually referred to as the lending value.

    Example: With a $50,000 down payment, you can acquire a conventional loan, meaning that the house you want to buy must not be worth more than $250,000. However, if you need to borrow more than 80% of the property’s value, you’ll have to apply for a high-ratio mortgage instead. Also, the down payment used for borrowing conventional loans cannot be borrowed funds. You can use the profits acquired from the sale of other property or personal finances.

    Key Takeaways

    • Conventional mortgage loans require a minimum down payment of at least 20% and offer a maximum loan value of 80%. If you get a conventional loan, you will not be required to have insurance because it’s not regarded as a high-risk mortgage
    • High-ratio mortgages are loans that can be more than 80% of the property’s value. Borrowers with less than a 20% down payment can take out a high-ratio mortgage but will have to pay the additional insurance added to their mortgage
    • Collateral mortgages and high-ratio mortgages can potentially offer higher amounts on a mortgage than conventional mortgages

    Best Mortgage Rates

    Fixed
    Variable
    in

    0.00%3 Year Fixed

    Get Rates

    0.00%5 Year Fixed

    Get Rates
    Check more rates

    What is a High-ratio Mortgage?

    The meaning of a high-ratio mortgage should not be confused with that of a conventional loan. For high-ratio loans, you can borrow with a down payment of less than 20% of the property’s purchase price. In Canada, a high-ratio mortgage is one with a loan-to-value ratio of more than 80%.
    Usually, high-ratio loans are insured by the lender, who takes out mortgage insurance from one of Canada’s three mortgage insurers, including the Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly known as Genworth Canada), and Canada Guaranty.

    Example: If you want to purchase a $250,000 home in Canada but only have a down payment of $25,000, which is less than 20% of the purchase price, you should consider a high-ratio mortgage, which requires you to have mortgage insurance.

    As a Canadian with as little as a 5% down payment, you can buy a home with a high-ratio mortgage loan. However, because high-ratio mortgage loans are considered riskier for banks, the insurance taken out by the lender will be added to your overall mortgage amount.

    Conventional Mortgage vs High-ratio Mortgages

    Conventional mortgages and high-ratio mortgages are both available to Canadians looking to finance their homebuying needs. The conventional mortgage loan definition we provided above shows that conventional loans limit you to 80% of your lending value. In contrast, high-ratio mortgages allow you to borrow more with less than a 20% down payment.

    Comparing high ratio vs conventional mortgage, the property value for high ratio mortgage loans must not exceed $1,000,000. However, for conventional mortgages, loans are restricted to 80 percent maximum of the property’s value. One thing that remains the same between both types of mortgages is that your down payment must come from your resources and not from borrowed funds. The lender may have a ‘sliding scale’ for any properties above $1,000,000 for added security and to reduce his risk


    Furthermore, when you take out a high-ratio mortgage loan, your lender will obtain insurance to cover an eventual default on the mortgage, which you will pay or attach to your mortgage payment.

    Home buying without the stress.

    Start your mortgage application today

    Collateral Mortgage vs. Conventional mortgage

    Collateral mortgage loans are among the several options homebuyers can consider when taking out a mortgage in Canada. You may be asking, what is a conventional mortgage loan, and how do they compare against collateral mortgages? We’ve already discussed what conventional mortgages entail, but what is a collateral mortgage?

    A collateral mortgage is a readvanceable mortgage in which lenders can lend you more funds after the initial loan without you having to refinance your home. A collateral charge is required for this type of loan, and this charge is usually higher than the mortgage loan amount. A collateral mortgage is similar to a HELOC, which allows you to borrow more funds against your home’s equity.

    With a collateral mortgage, you get secondary financial security, while conventional mortgages only give you a loan amount that’s at most 80% of your property’s value. However, collateral loans are not transferable from one lender to another, but if you decide to switch lenders, you may need to pay legal fees, even if the mortgage term has expired.

    Frequently Asked Questions

    What down payment is needed for a conventional mortgage?

    To get a conventional loan in Canada, you need to have a down payment of at least 20% of the property’s value. This type of loan is not associated with any form of insurance or high ratio. However, the 20% down payment must be from personal resources, not a loan or borrowed fund.

    How do I find the best conventional mortgage rate?

    To find the best conventional mortgage rates in Canada, you’ll need to compare lenders using a mortgage rate calculator. But before comparing rates, you should have decided on the type of mortgage you want to take out for your home purchasing needs. Mortgage lenders like nesto will always have the current prices for their products stated on their platform.

    Final Thoughts

    Conventional mortgages, high-ratio mortgages, and collateral mortgages are some of the several options borrowers have when they decide to finance their home purchase. Ultimately, you’ll need to consider the pros and cons of each type of mortgage or speak with a qualified mortgage expert to decide the best option for the type of house you want to buy. Additionally, the amount you have on hand for the down payment will play a significant role in the type of mortgage you choose.

    How nesto works

    At nesto, all of our commission-free mortgage experts hold concurrent professional designations from one or more provinces. Our clients will receive the best advice and care when they speak with specialists that exceed the industry status quo. 

    Unlike the industry norm, our agents are not commissioned but salaried employees. This means you’ll get free, unbiased advice on the most suitable mortgage solution for your unique needs. Our advisors are measured on the satisfaction and quality of advice they provide to their clients. 

    nesto is working hard to change how the mortgage industry functions. We start with honest and transparent advice, followed by our best rates upfront. We can offer you these low rates using the fintech industry’s best-in-class and safest technology to provide a 100% digital online experience and process to reduce overhead costs.

    By working remotely across Canada, all our mortgage experts and staff spend less time commuting to work and more time with their friends and family. This makes for more dedicated employees and contributes to our success with happy and satisfied clients.

    nesto is on a mission to offer a positive, empowering and transparent property financing experience, simplified from start to finish.

    Reach out to our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.


    Ready to get started?

    In just a few clicks, you can see our current rates. Then apply for your mortgage online in minutes!

    in this series Types of Mortgages

    Best Mortgage Rates

    Fixed
    Variable
    in

    0.00%3 Year Fixed

    Get Rates

    0.00%5 Year Fixed

    Get Rates
    Check more rates