Insured or conventional?

A conventional mortgage is a home loan where the down payment is 20% or more of the purchase price. Because you have significant equity in the home from the start, mortgage default insurance is not required. This means you avoid the cost of the insurance premium, resulting in a smaller total loan amount.

It seems counter-intuitive, but lenders often offer their most competitive interest rates on high-ratio mortgages. This is because the mandatory mortgage insurance protects the lender, not you. If you were to default on the loan, the insurer pays the lender back, completely eliminating the lender's financial risk. Lower risk for them often translates to a lower rate for you.

There's no single 'best' choice; it depends entirely on your financial situation. A high-ratio mortgage allows you to enter the housing market sooner with a smaller down payment. A conventional mortgage requires more savings upfront but allows you to avoid the insurance premium and build equity faster. The key is to weigh the cost of the insurance premium against the interest savings from a potentially lower rate.

The mortgage default insurance premium is calculated as a percentage of your loan amount, and the percentage gets higher as your down payment gets smaller. For example, a 5% down payment might have a 4.0% premium, while a 15% down payment might have a 1.8% premium. This premium is then added to your mortgage balance and paid off over the life of the loan.