LTV (Loan-to-Value) is the ratio of your mortgage amount to the appraised value of the property. A $400,000 mortgage on an $800,000 property = 50% LTV. In Canada, insured mortgages require a maximum 95% LTV (5% down). Conventional mortgages require 20% down or more (maximum 80% LTV).
Loan-to-Value ratio — LTV — is one of the most fundamental concepts in mortgage underwriting. It determines whether a mortgage requires default insurance, which products are available, and in most cases what rate the borrower qualifies for. Understanding LTV thoroughly is not optional for anyone working in mortgages.
The LTV formula
LTV is the ratio of the mortgage amount to the property value, expressed as a percentage:
LTV = (Mortgage Amount ÷ Property Value) × 100
For a purchase, the property value used is the lower of the purchase price or the appraised value. If a property sells for $750,000 and the appraisal confirms $750,000, the denominator is $750,000. If the appraisal comes in at $720,000 — below the purchase price — the lender uses $720,000 as the base for LTV calculation, regardless of what the buyer agreed to pay.
Example: Purchase price $650,000. Down payment $52,000 (8%). Mortgage required = $598,000.
LTV = ($598,000 ÷ $650,000) × 100 = 92%
This is a high-ratio mortgage requiring default insurance from CMHC, Sagen, or Canada Guaranty.
High-ratio vs. conventional mortgages
In Canada, the 80% LTV threshold is the line between high-ratio and conventional mortgages.
High-ratio mortgage: LTV greater than 80% (down payment less than 20%). Requires mortgage default insurance. Available only on owner-occupied properties with purchase prices under $1.5 million (effective December 2024). Maximum amortization is 30 years for first-time buyers and certain new construction; 25 years otherwise under most insurers.
Conventional mortgage: LTV at or below 80% (down payment 20% or more). Does not require default insurance. Available on a wider range of property types and purchase prices. Amortization up to 30 years at most institutional lenders (some credit unions go to 35).
Rental properties and vacation properties cannot be purchased with high-ratio insured financing — a minimum 20% down payment (conventional) is always required for non-owner-occupied residential properties.
Mortgage default insurance: CMHC, Sagen, and Canada Guaranty
Canada has three mortgage default insurers:
- CMHC (Canada Mortgage and Housing Corporation) — federally owned, the largest and most well-known insurer. Sets the standard that the other two largely follow.
- Sagen (formerly Genworth Canada) — the primary private insurer. Comparable guidelines to CMHC with some flexibility in certain areas.
- Canada Guaranty — the third insurer, with competitive programs and some distinctions in self-employed and borrower-friendly features.
All three insurers follow broadly similar minimum requirements: minimum 5% down payment (for properties up to $500,000, with sliding scale above), minimum 600 beacon score, maximum GDS of 39% and TDS of 44%, and the property must be in Canada and owner-occupied. Lenders choose which insurer to use — borrowers do not select their insurer directly.
Insurance premium calculation
When a mortgage is insured, the borrower pays a default insurance premium that is added to the mortgage amount (it is not paid out of pocket at closing — it is capitalized). The premium percentage varies by LTV:
- LTV 80.01–85.00%: 2.80% of the insured mortgage amount
- LTV 85.01–90.00%: 3.10%
- LTV 90.01–95.00%: 4.00%
On a $600,000 purchase with 5% down ($30,000), the insured mortgage is $570,000. At 95% LTV, the premium is $570,000 × 4.00% = $22,800. This is added to the mortgage, making the total mortgage $592,800. The premium is also subject to provincial sales tax in some provinces (e.g., Ontario applies HST to the premium, which must be paid at closing).
How LTV affects rate and product selection
LTV is one of the primary risk variables in mortgage pricing. Generally, lower LTV means lower risk to the lender, which can translate to better rate offers on conventional products. However, the relationship between LTV and rate is not straightforward:
High-ratio insured mortgages are backed by government-regulated insurance, which makes them extremely low-risk for lenders. As a result, insured rates are often the lowest available — lower than conventional rates at 80% LTV — because the lender has no credit risk exposure. The borrower pays for that lower rate in the form of the insurance premium, but the contract rate they receive is often competitive.
Conventional mortgages above 65% LTV are uninsured — the lender carries the full credit risk. Rates in the conventional space are influenced by the lender's risk appetite. At 65% LTV and below, some lenders offer their best conventional pricing. At 75–80% LTV conventional, the rate may be slightly higher because the lender holds more equity risk.
A client with 20% down has a choice: put exactly 20% down for a conventional mortgage, or put more down to reach a lower LTV tier. In most cases, the rate difference between 80% LTV and 65% LTV conventional is small — the math on investing extra down payment capital elsewhere versus reducing the mortgage rate usually favours keeping the down payment at the minimum conventional threshold and investing the excess. This is a conversation worth having with clients.
LTV in refinances and switches
For refinances, the maximum LTV at most institutional lenders is 80% of the current appraised value (conventional). The borrower cannot refinance above that threshold to pull out equity. For a simple lender switch (same balance, different lender), no requalification is required under the stress test as of recent regulatory guidance — but the new lender still assesses the borrower's creditworthiness and the property must appraise appropriately.
For second mortgages and HELOCs, the combined LTV across all registered mortgages on the property typically cannot exceed 80% (for institutional products) or higher thresholds at B-lenders and private lenders. Understanding the current registered balance and the current appraised value is the starting point for any equity take-out conversation.
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