Which of the following best describes a conventional mortgage in Canada?

Q: What is the correct answer to: Which of the following best describes a conventional mortgage in Canada?

The correct answer is A mortgage with 20% or more down payment. Option B correctly identifies that conventional mortgages require 20% or more down payment. This threshold is established by federal banking regulations and OSFI guidelines. With 20%+ down, the loan-to-value ratio is 80% or less, eliminating the requirement for mortgage default insurance. This classification as 'conventional' reflects the traditional lending standard where substantial borrower equity reduces lender risk, making these mortgages eligible for different underwriting criteria and often better interest rates.

Q: What background knowledge is needed for this Mortgage & Real Estate Finance question?

Canadian mortgage classification divides loans into conventional (20%+ down) and high-ratio (less than 20% down) categories. This distinction stems from federal banking regulations and OSFI guidelines that require mortgage default insurance for loans exceeding 80% loan-to-value ratio. CMHC, Genworth Financial, and Canada Guaranty provide this insurance. Conventional mortgages benefit from no insurance premiums, potentially better rates, and different qualification criteria. The 20% threshold balances homeownership accessibility with financial system stability, reflecting decades of lending experience and regulatory evolution.

Q: What is a good way to remember the answer to this Mortgage & Real Estate Finance question?

Remember 'Conventional = 20/80': 20% down payment minimum, 80% maximum loan-to-value ratio. Think 'Conventional Wisdom says save 20%' - conventional mortgages require the traditional 20% down payment that financial advisors have long recommended. When you see mortgage classification questions, immediately think '20/80 Rule.' If the question mentions 20% or more down payment, it's describing a conventional mortgage. Less than 20% down means high-ratio mortgage requiring insurance.

Q: What exam tip applies to this Mortgage & Real Estate Finance question?

Look for the 20% down payment threshold in mortgage questions. Conventional = 20%+ down, no insurance required. High-ratio = less than 20% down, insurance required. Don't confuse mortgage type with interest rate structure.

Q: How does this Mortgage & Real Estate Finance concept apply in real world practice?

A client approaches you wanting to purchase a $500,000 home with $100,000 saved for down payment. This represents 20% down, qualifying them for a conventional mortgage of $400,000. You explain they won't need mortgage default insurance, potentially saving thousands in premiums, and may qualify for better interest rates. However, they should also consider keeping some savings for closing costs, moving expenses, and emergency funds rather than using every dollar for the down payment.

Question

Mortgage & Real Estate FinanceMortgage TypesMEDIUM

Which of the following best describes a conventional mortgage in Canada?

Answer Options

A

A mortgage with less than 20% down payment

B

A mortgage with 20% or more down payment

C

A mortgage with a variable interest rate

D

A mortgage insured by CMHC