If you’re getting a mortgage in Canada, you might come across the terms insured, insurable, and uninsured mortgages. Understanding the difference is important, as it affects the interest rate you’ll get and the type of home you can buy.
What is Mortgage Insurance?
Mortgage insurance, also known as mortgage default insurance, is a policy that protects lenders in case a borrower stops making payments on their mortgage.
In Canada, it’s required when a homebuyer makes a down payment of less than 20% of the purchase price. This insurance reduces the lender’s risk, allowing them to offer lower interest rates. However, while it benefits lenders, the cost of the insurance is covered by the borrower as a one-time premium that can be added to the mortgage.
How Much Does Mortgage Insurance Cost?
The cost of mortgage insurance depends on the loan-to-value (LTV) ratio, which is the percentage of the home’s price being borrowed. Premium rates typically range from 2.8% to 4.0% of the mortgage amount.
For example, if you buy a home for $500,000 with a 10% down payment ($50,000), you’d need to insure a mortgage of $450,000. The insurance premium at 3.10% would be $13,950. This amount is usually added to the mortgage rather than being paid upfront.
What is an Insured Mortgage?
An insured mortgage is one where the borrower pays for mortgage default insurance (also known as CHMC, Sagen, or Canada Guaranty insurance).
This is required if your down payment is less than 20% of the home’s purchase price.
Example:
Maria is buying her first home for $500,000 and has saved $50,000 for a down payment (10%). Because she’s putting down less than 20%, she must get mortgage insurance. This makes her mortgage insured.
✅ Pros: Lower interest rates, easier approval.
❌ Cons: Extra insurance cost added to the mortgage.
What is an Insurable Mortgage?
An insurable mortgage is one that meets the same requirements as an insured mortgage but doesn’t require the borrower to pay for insurance directly. Instead, the lender may choose to insure it on their own.
Example:
David is buying a home for $600,000 and has saved $150,000 (25% down). Because his down payment is over 20%, he doesn’t need mortgage insurance, but his lender might still insure the mortgage in the background. This makes his mortgage insurable.
✅ Pros: Lower rates than uninsured mortgages.
❌ Cons: Must meet strict criteria (e.g., purchase price under $1M, 25-year max amortization).
What is an Uninsured Mortgage?
An uninsured mortgage is one that doesn’t qualify for insurance. These are typically mortgages with:
- A purchase price over $1 million
- An amortization period longer than 25 years
- A rental or investment property
- Alternative lending (e.g., private lenders)
Example:
Jessica is buying a home for $1.2 million with 20% down. Because the purchase price is over $1M, her mortgage is uninsured.
✅ Pros: More flexibility in borrowing.
❌ Cons: Higher interest rates, stricter qualification rules.
Why does the type of mortgage (insured, insurable, and uninsured) matter?
The type of mortgage you get impacts your interest rate, down payment, and borrowing options. If you’re unsure which category you fall into, speaking with a mortgage professional can help you navigate your options.
FAQ: Insured, Insurable, and Uninsured Mortgages in Canada
1. What is the difference between an insured, insurable, and uninsured mortgage?
An insured mortgage requires mortgage default insurance because the down payment is less than 20%. An insurable mortgage meets the same criteria as an insured mortgage but doesn’t require the borrower to pay for insurance. An uninsured mortgage doesn’t qualify for insurance, typically due to a high purchase price (over $1M) or extended amortization.
2. Why do some mortgages require mortgage insurance?
Mortgage insurance is required in Canada when a homebuyer puts down less than 20% of the purchase price. It protects the lender from default and allows borrowers to qualify for lower interest rates.
3. How much does mortgage insurance cost?
Mortgage insurance costs 2.8% to 4.0% of the loan amount, depending on the down payment. The premium is usually added to the mortgage and paid over time.
4. Do I need mortgage insurance if I put 20% down?
No, if you have a down payment of 20% or more, you don’t need mortgage insurance. Your mortgage may still be insurable if it meets certain criteria, which can help you get a lower interest rate.
5. What happens if my home price is over $1 million?
Homes priced over $1 million do not qualify for mortgage insurance, even if the down payment is less than 20%. These mortgages are considered uninsured and typically come with higher interest rates.
6. Can I get a lower mortgage rate with an insured or insurable mortgage?
Yes, insured and insurable mortgages typically qualify for lower interest rates because they carry less risk for lenders. Uninsured mortgages often come with higher rates.
7. How do I know if my mortgage is insured or insurable?
Your mortgage broker or lender will determine whether your mortgage qualifies as insured, insurable, or uninsured based on your down payment, home price, and amortization period.
8. Can I remove mortgage insurance after my mortgage is approved?
No, once mortgage insurance is applied to a loan, it remains for the entire mortgage term. However, if you refinance with a larger down payment, you may qualify for an uninsured mortgage.
At Deeded, we help buyers and homeowners understand their mortgage obligations so they can close with confidence. Have questions? We’re here to help.
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