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Capital game

Insured vs. Conventional Mortgages: What You Need to Know Before Buying a Home

When applying for a mortgage in Canada, one of the most important distinctions to understand is whether your loan will be insured or conventional. If your down payment is less than 20% of the purchase price, mortgage loan insurance is mandatory. If you put down 20% or more, you may qualify for a conventional mortgage, which comes with fewer costs and more flexibility. Understanding the difference can help you make smarter, more cost-effective decisions.

What is an insured mortgage?

An insured mortgage is required when your down payment is less than 20% of the home’s purchase price. In this case, your lender must obtain mortgage loan insurance from a provider such as:

Purpose of the insurance:

This insurance protects the lender — not the buyer — in case of default. In exchange for this safety net, the buyer pays a premium that is added to the mortgage amount.

How much does it cost?

The premium is based on your loan-to-value ratio and typically ranges from 2.80% to 4.00% of the mortgage amount.

Example

On a $400,000 home with a 5% down payment ($20,000), the insurance premium could be approximately $15,200, added to your mortgage.

What is a conventional mortgage?

A conventional mortgage applies when your down payment is 20% or more of the property’s purchase price. This type of mortgage:
  • Does not require mortgage insurance
  • Reduces the total cost of borrowing
  • Often offers greater flexibility in terms and options

Key advantages:

  • You avoid the insurance premium, which leads to immediate savings
  • You borrow a smaller amount, so you pay less interest
  • You may be able to negotiate better conditions (e.g. longer amortization, more varied products)

Comparaison rapide

Why aim for a 20% down payment?

Even though saving a 20% down payment may seem difficult, it allows you to:
  • Save thousands of dollars in insurance premiums
  • Lower your monthly payments
  • Increase your chances of approval with certain lenders
  • Have more room to maneuver for future projects

Tip

By combining the HBP (Home Buyers’ Plan) and the FHSA (First Home Savings Account), a couple could accumulate up to $200,000 tax-free for a down payment. This can help them qualify for a conventional mortgage.

In Conclusion

Understanding the difference between an insured mortgage and a conventional mortgage is essential when planning to buy a property. If your down payment is less than 20%, insurance will be required — increasing the total cost of the loan. On the other hand, reaching or exceeding 20% allows you to lower your borrowing costs, benefit from greater flexibility, and access better terms. Good planning makes all the difference.