Conventional Down Payment or Insured Mortgage: Which Option Should You Choose?

When it's time to buy a property, the size of your down payment affects your loan, your fees, and how much money you have left after the transaction. In Canada, the comparison is often made between a down payment of 20% or more — generally called "conventional" — and a down payment of less than 20%, which usually requires mortgage loan insurance. Here are the key differences to help you choose based on your situation.

What is a conventional down payment?

With a down payment of 20% or more of the purchase price, you generally get an uninsured mortgage, also called a conventional mortgage. You typically avoid the mortgage insurance premium and borrow less than you would with a smaller down payment. In exchange, you need to have saved up more before buying. However, a lender may still require insurance in certain cases, even with a 20% down payment, depending on factors such as the borrower's credit profile or employment situation.

What is an insured mortgage?

If your down payment is less than 20%, the loan is usually insured against default. This insurance protects the lender, not the borrower; however, it allows eligible buyers to access homeownership with a smaller down payment. The main insurers in Canada include CMHC, Sagen, and Canada Guaranty. The lender generally arranges the insurance, and the premium is usually passed on to the borrower.

Pros and cons of each option

• Down payment of 20% or more: no insurance premium in most cases, a lower loan balance, and therefore potentially reduced payments and interest. The downside is the greater savings effort required; tying up a large portion of your cash in the property may also leave you with less of a cushion for unexpected expenses, renovations, or closing costs.
• Down payment of less than 20%: you can buy sooner without waiting to save 20%, and keep more of your savings available. On the other hand, the premium increases the cost of financing, and if it's added to the loan, you also pay interest on that premium.

Insurance premium and interest rate: the cost isn't just one number

The premium varies based on the loan-to-value ratio: the smaller the down payment, the higher the premium rate generally is. For a standard CMHC-insured loan, published rates range from 0.60% to 4.00% in common categories, depending on the loan-to-value ratio; special situations may result in different rates. Sagen and Canada Guaranty also publish their own rate schedules. Ask your broker for a precise estimate, as the criteria and final calculation depend on your file.

In Quebec, the premium is subject to the insurance premium tax, currently 9%, which will rise to 9.975% for premiums paid after December 31, 2026. This tax must be accounted for in the funds needed at closing and cannot be added to the loan. Confirm the applicable amount for your payment date with your broker.

An insured mortgage can come with a competitive interest rate, sometimes comparable to what's offered to a borrower with a larger down payment, but that doesn't guarantee the insured option will cost less overall. Compare actual offers, taking into account the premium, the tax, the rate, the loan balance, and the amortization period. The rate offered also depends on the lender, the term, the rate type, and your credit profile.

Impact on monthly payments

A larger down payment reduces the amount borrowed; a financed premium, on the other hand, increases the principal of an insured loan. Both factors affect your payments. As an illustration: for a $400,000 home with a hypothetical rate of 4% and a 25-year amortization, the mortgage, premium included, would be about $395,200 with a 5% down payment, compared to $320,000 with 20%. This is just an example, but it clearly shows the combined effect of the down payment and the premium. A longer amortization period can reduce periodic payments but generally increases total interest paid; eligible insured loans can go up to 30 years for first-time buyers and those purchasing a new build.

Current minimum down payment rules

For a property eligible for mortgage loan insurance, federal rules generally require:

• $500,000 or less: at least 5% of the price;
• more than $500,000 and less than $1.5 million: 5% on the first $500,000, then 10% on the portion above that;
• $1.5 million or more: at least 20%.

The price cap for insurance-eligible properties was raised to $1.5 million in December 2024. Insurers and lenders must also approve the file according to their own criteria, so meeting the legal minimum doesn't guarantee automatic approval.

How to decide?

Don't choose based solely on the premium or the advertised rate. Ask your broker to compare both scenarios using the same assumptions and to present the payment, total cost, closing costs, and remaining liquidity. A down payment of 20% or more may be a good fit if it doesn't completely drain your reserves and you want to minimize interest paid over the long term. An insured mortgage, on the other hand, can be an excellent way to access homeownership sooner while keeping a financial cushion for the unexpected. Every situation is unique: feel free to contact me for a personalized analysis based on your goals and savings capacity.