Conventional Mortgage Down Payment

On a standard Canadian home purchase, 20% down brings the base mortgage to 80% LTV. That is the common boundary between high-ratio and conventional/low-ratio financing. It normally removes the need for the borrower-paid high-ratio mortgage-insurance premium that applies below 20%, assuming the transaction otherwise fits lender requirements.

But crossing 20% does not mean the mortgage is automatically uninsured, insurable, approved or cheaper in every dimension. It means one thing with certainty: the borrower is requesting less debt relative to the property value.

Increasing the down payment can reduce the base mortgage, lower LTV, avoid or reduce mortgage-insurance premiums, improve qualification by lowering the payment and potentially change the lender’s pricing/funding bucket. At the same time, it reduces the borrower’s liquid cash after closing.

Those effects move in different directions. The strongest down-payment decision is not necessarily the largest one; it is the level that creates a sustainable mortgage without stripping the household of the reserves needed to own the home safely.

At 20% down, the mortgage is conventional by LTV. Whether it is insurable depends on other characteristics such as property value, amortization, transaction purpose, occupancy and insurer/lender criteria. Current Sagen and Canada Guaranty public programs, for example, use lower property-value ceilings for common low-ratio insurance eligibility than for high-ratio purchases.

A borrower can therefore contribute 20%, 25% or even more and still receive uninsured pricing because another feature—not the size of the down payment—is driving the classification.

CMHC’s standard homeowner purchase insurance requires the purchase price/lending value to be below $1.5 million. At and above that level, the borrower cannot use the ordinary CMHC high-ratio purchase path to solve a small down-payment shortfall.

That makes conventional equity especially important for higher-priced homes. It also means a borrower buying above the insured ceiling should not assume that putting exactly 20% down creates an insurable low-ratio mortgage; the lender’s uninsured/insurable property-value rules still need to be considered.

Just below 20% down, a standard eligible purchase remains high-ratio and carries a borrower-paid insurance premium. At 20%, that standard high-ratio premium disappears. This can make the marginal cash required to reach 20% look unusually valuable.

But the full comparison must include the insured mortgage’s potentially different rate, the amount of cash retained, and what that retained cash could protect against. A borrower who empties every account to reach 20% may eliminate an insurance premium while creating a household liquidity problem.

At $900,000, the current minimum insured down payment is $65,000, producing an $835,000 base mortgage before insurance. The standard 4.00% premium at that LTV is $33,400, so the financed mortgage becomes about $868,400, plus Ontario tax on the premium payable in cash.

With 20% down, the borrower contributes $180,000 and the base mortgage is $720,000 with no standard borrower-paid high-ratio premium. The conventional structure therefore uses $115,000 more cash up front but begins with roughly $148,400 less mortgage debt than the insured structure after the premium is financed.

That does not automatically prove the 20% structure is superior. The borrower must ask what happens to emergency reserves, the contract rate, monthly payment and future plans after using the additional $115,000.

Moving from 20% to 25%, 30% or 35% down continues to reduce the mortgage and payment. It can also move LTV through lender pricing or underwriting thresholds. At very low LTVs, the lender’s loss exposure is materially smaller, which can improve fit for some borrowers or properties.

The marginal benefit, however, usually becomes more incremental once the borrower-paid high-ratio premium has already disappeared. At that point the decision is increasingly about leverage, rate buckets and liquidity rather than avoiding a one-time insurance charge.

More equity reduces the mortgage amount and therefore the payment used in debt-service ratios. It can also move the transaction into a lender/product classification with different qualification or property rules.

Those are separate effects. If the borrower is failing because the payment is too large, a modest extra down payment may help mathematically. If the problem is an insurer or lender rule, the amount required to cross the relevant classification threshold may be much larger—or extra equity may not solve it at all.

The lender still needs to understand where the down payment came from and whether the borrower has the legal/economic right to use it. Savings history, gifts, sale proceeds, investments, borrowed funds and transfers between accounts can require different evidence.

Having 20% down does not make source-of-funds questions disappear. In fact, a larger transaction can make clean tracing more important. Use Down Payment Sources and Proof of Down Payment for the evidence side rather than repeating those rules here.

The down payment is not the only cash needed to complete a purchase. Legal fees, land transfer tax, adjustments, appraisal/inspection costs where applicable, moving expenses and an insured-premium tax can create separate closing requirements. The deposit paid with the offer is normally credited toward the down payment, but it does not make those other costs disappear.

A down-payment strategy should therefore be built from total available cash minus closing costs minus desired reserves, not from the bank-account balance alone.

Home ownership creates expenses that are not captured by the mortgage payment: repairs, deductibles, appliances, utility surprises and income disruptions. A self-employed or variable-income household may need a larger reserve than a household with two stable salaries.

A useful discipline is to decide the minimum cash reserve that should remain after closing, then compare mortgage structures using only the capital above that floor. This reframes the decision from “What is the biggest down payment I can make?” to “What is the biggest down payment I can make without weakening the rest of my balance sheet?”

Compare 10%, 15%, 20%, 25% or other feasible levels using the same outputs: cash at closing, insurance premium, mortgage amount, payment, expected balance at renewal and reserves remaining. If the borrower has other high-cost debt, investment needs or business working-capital requirements, those competing uses of cash belong in the decision too.

Use the Down Payment Planner, CMHC Insurance Calculator and Mortgage Payment Calculator together. Each calculator answers one part of the capital-allocation question.