First-Time Buyer Mortgage Planning Guide › Chapter 5
Insured or conventional: which mortgage actually costs you less?
By Rajiv Verma, Mortgage Broker · Mortgage Architects, FSRA Brokerage Licence #12728 · Updated November 3, 2026
Short answer: an insured mortgage (less than 20% down) usually costs more over five years, even though its rate is often lower. What you get for that cost is cash still in your bank account. In our $800,000 example, keeping about $40,000 in the bank costs roughly $17,000 over five years, mostly as a higher mortgage balance, not cash out of pocket. For some buyers that’s a smart trade. For others it isn’t.
Most first-time buyers I speak with in Brampton and across the GTA have been told the same thing: “Save 20% so you don’t pay CMHC.” It sounds sensible. But it leaves out half the picture, and sometimes it pushes people to drain every dollar of savings just to reach 20%.
Let’s sit down with real numbers and look at it properly.
What’s the difference between an insured and a conventional mortgage?
If you put down less than 20%, your mortgage must be insured against default. With 20% or more, it’s conventional (uninsured). You pay for the insurance, but it protects the lender, not you.
| Insured mortgage | Conventional mortgage | |
|---|---|---|
| Down payment | Less than 20% | 20% or more |
| Default insurance | Required (CMHC, Sagen or Canada Guaranty) | Not required |
| Insurance premium | Added to your mortgage | None |
| Typical rate | Usually lower | Usually higher |
| Maximum home price | Under $1.5 million | No insured limit |
| 30-year amortization | Available to first-time buyers and buyers of new builds | Available with many lenders |
Here’s what surprises most people: insured mortgages often get better rates. The insurer carries the risk, so lenders can price them lower. That’s why someone with 10% down can sometimes get a better rate than someone with 25% down.
How much does mortgage default insurance cost?
The premium is a percentage of your mortgage amount, and the less you put down, the higher the percentage. Choosing a 30-year amortization adds 0.20%.
| Down payment | Premium (25-year) | Premium (30-year) |
|---|---|---|
| 5% to 9.99% | 4.00% | 4.20% |
| 10% to 14.99% | 3.10% | 3.30% |
| 15% to 19.99% | 2.80% | 3.00% |
| 20% or more | None | None |
Source: CMHC premium schedule. Sagen and Canada Guaranty premiums are generally similar. A higher premium applies if your down payment is borrowed.
Can I put 5% down on any home? No. The minimum is 5% on the first $500,000 and 10% on the portion above that. On an $800,000 home, that’s $55,000 (6.875%), not $40,000.
Nobody told me this
The insurance premium gets added to your mortgage. The Ontario tax on that premium does not. It’s 8%, and you pay it in cash, through your lawyer, on closing day.
On a $680,000 mortgage with 15% down, the premium is $20,400 and the tax is $1,632 out of your pocket. Many buyers don’t hear about it until just before closing. Now you know a year ahead.
Does 15% down cost more than 20% on an $800,000 home?
Worked example: $800,000 home, 30-year amortization, 5-year variable rate.
These use my example rates as of November 3, 2026: insured variable at prime minus 1.00% (3.70%) and conventional variable at prime minus 0.50% (4.20%), with prime at 4.70%. Rates change. Yours will depend on your application.
| Buyer A 15% down, insured |
Buyer B 19.99% down, insured |
Buyer C 20% down, conventional |
|
|---|---|---|---|
| Down payment | $120,000 | $159,920 | $160,000 |
| Insurance premium (added to mortgage) | $20,400 | $19,202 | $0 |
| Ontario tax on premium (cash at closing) | $1,632 | $1,536 | $0 |
| Total mortgage | $700,400 | $659,282 | $640,000 |
| Rate (example) | 3.70% | 3.70% | 4.20% |
| Monthly payment | $3,224 | $3,035 | $3,130 |
| Interest paid over 5 years | $123,404 | $116,159 | $128,496 |
| Still owing after 5 years | $630,375 | $593,368 | $580,713 |
| Cash kept in your bank account | $40,000 | $0 | $0 |
| Total cost vs Buyer C after 5 years | about $16,900 more | about $8,400 more | — |
“Total cost” adds up everything each buyer paid in (down payment, tax, five years of payments) plus what they still owe. It assumes the rate stays the same for all five years, which a variable rate may not, and it doesn’t count any interest Buyer A could earn on the cash they kept.
Why the rate gap matters: these results depend on the difference between insured and conventional rates. In this example it’s 0.50%. If the gap were smaller, insured would cost more. If it were bigger, it would cost less. That’s why your own numbers matter more than any example.
What the numbers are really telling you
Buyer A vs Buyer C. Buyer A borrows $60,000 more, yet the payment is only about $94 a month higher, and they actually pay less interest because of the lower rate. The cost of the insured route, about $16,900 over five years, buys Buyer A about $38,400 of breathing room ($40,000 kept, minus the $1,632 tax paid at closing). Most of that $16,900 isn’t cash out of pocket. It shows up as a higher mortgage balance.
That trade is worth it if the $40,000:
- covers your closing costs, so you don’t put them on a credit card or line of credit
- becomes your emergency fund for the first years of owning a home
- stops you from emptying your FHSA, RRSP and savings all at once
It’s not worth it if the money would just sit in a savings account earning little.
Buyer B vs Buyer C. If you already have the full 20%, don’t stop at 19.99%. Buyer B pays the insurance and the tax and ends up about $8,400 worse off, just to save about $95 a month. If you have 20% and stretching to it won’t leave you with zero savings, conventional usually wins.
Rajiv’s honest take
I’m not here to push you to insured or conventional. The right answer depends on what that extra cash would do for you. Put down 20% if you can do it and still keep a cushion. Put down less if reaching 20% would leave you with nothing for closing costs, furniture or a bad month.
Try it with your numbers: the live insured vs conventional calculator is in my free mortgage app.
Does variable or fixed change how much I can borrow?
Every insured buyer, and most bank borrowers, must pass the stress test: you qualify at your contract rate plus 2%, or 5.25%, whichever is higher. A lower rate means a lower qualifying rate, and that can change how much you can borrow.
Example household: $150,000 income, no other debts, $6,000 a year property tax, $150 a month heating, 30-year amortization. Example rates as of November 3, 2026.
| Insured 5-year variable | Conventional 5-year variable | Conventional 5-year fixed | |
|---|---|---|---|
| Example rate | 3.70% | 4.20% | 5.14% |
| You must qualify at | 5.70% | 6.20% | 7.14% |
| Maximum mortgage | about $728,000 | about $690,000 | about $633,000 |
Between insured variable and conventional fixed, that’s roughly $95,000 more borrowing power in this example. The middle column shows how much of that comes from variable vs fixed (about $57,000) and how much from insured vs conventional pricing (about $38,000).
The other side: a variable rate moves with prime. Prime went up 0.25% on October 29, 2026. If your budget can’t handle your payment rising, the extra borrowing power isn’t worth the stress. Only choose variable if you’d be comfortable with a higher payment down the road.
What happens if the insurers decline my mortgage?
With less than 20% down, there are only three insurers in Canada: CMHC, Sagen and Canada Guaranty. Every insured mortgage, at every bank and every lender, has to fit one of their guidelines.
Their rules are similar. If your file doesn’t fit one, there’s a real chance it won’t fit the others. I’ll always try all three, because sometimes one insurer looks at a file differently. But once all three say no, your backup options become very limited and much more expensive.
Is there a backup if the insurers say no?
Realistically, it starts at 20% down. Alternative lenders generally require it because their mortgages are conventional. With less than 20%, your backup options become very limited and much more expensive, so treat your insured approval as the plan and prepare your credit, income documents and down payment trail before you start looking at homes.
How alternative lenders work →
What should I do, and what should I avoid?
Do
- Run both scenarios, insured and conventional, before deciding on your down payment
- Budget for the 8% premium tax in cash on closing day
- Keep a cushion after closing, even if it means putting down less than 20%
- Get your file reviewed before you shop, especially with less than 20% down
Don’t
- Stop at 19.99% if you can reach 20% without draining your savings
- Choose a variable rate only for the bigger approval if a payment increase would hurt
- Count on an easy backup if the insurers decline you with under 20% down
Frequently asked questions
Is it worth saving for 20% down to avoid CMHC insurance?
Sometimes. With 20% down you avoid the premium and the tax on it, but conventional rates are usually higher. If reaching 20% leaves you with no savings, putting down less and keeping a cushion can be the safer choice.
Do I pay tax on mortgage default insurance in Ontario?
Yes. Ontario charges 8% provincial sales tax on the premium. It can’t be added to your mortgage and is paid in cash at closing through your real estate lawyer.
What’s the minimum down payment on a home over $500,000?
5% on the first $500,000 and 10% on the portion above it, up to $1.5 million. On an $800,000 home, that’s $55,000. At $1.5 million or more, you need 20% down.
Who qualifies for a 30-year amortization on an insured mortgage?
First-time buyers and anyone buying a newly built home. It adds 0.20% to the insurance premium.
Why are insured mortgage rates lower than conventional rates?
Because the insurer, not the lender, carries the risk if the borrower defaults. That lower risk lets lenders offer lower rates on insured mortgages.
What happens if CMHC declines my mortgage?
Your broker can try Sagen and Canada Guaranty, since one may view your file differently. If all three decline and you have less than 20% down, your backup options become very limited and much more expensive. That’s why preparing your file early matters.
Go deeper
- Compare your mortgage options
- The FHSA explained for GTA first-time buyers
- The RRSP Home Buyers’ Plan: up to $60,000 toward your down payment
- I’ve saved the down payment. Why do I need more cash at closing?
- CMHC: mortgage loan insurance premiums
Next up · Chapter 6How much can I actually afford?Continue reading →
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Rajiv Verma, Mortgage Broker · Mortgage Architects, FSRA Brokerage Licence #12728 · 15 Gateway Blvd, Unit 201, Brampton, Ontario · Office 289.505.0631 · Direct 647.291.7116
This guide is general education, not personal financial, legal or tax advice. Rates shown are examples as of November 3, 2026, for comparison only, and are not a quote or a commitment to lend. Your rate and approval depend on your application, credit, income, property and lender guidelines. Program rules can change.