Definition: A conventional mortgage is a loan that does not require mortgage insurance because the borrower has made a down payment of at least 20% of the home’s purchase price. This type of mortgage generally carries lower overall costs since it avoids the insurance premiums required for high-ratio (insured) mortgages.
Key points about conventional mortgages
- Down payment: To qualify for a conventional mortgage in Canada, borrowers must provide a minimum down payment of 20%.
- No mortgage insurance: Unlike insured mortgages, conventional mortgages don’t require mortgage insurance, such as CMHC, Canada Guaranty or Sagen insurance, reducing overall costs.
- Lender risk: Since the borrower holds at least 20% equity, lenders view conventional mortgages as less risky, often resulting in competitive interest rates for borrowers.
Benefits of a conventional mortgage
A conventional mortgage can provide greater flexibility in refinancing or porting options without the added cost of insurance. Additionally, since borrowers have higher equity, they may have better leverage with lenders in negotiating terms and rates.
Last modified: November 5, 2024