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Insured vs. uninsured mortgages

Key Takeaways

1. An insured mortgage – also referred to as a high-ratio mortgage or transactionally-insured mortgage – must satisfy the following criteria: a purchase price under $1 million, a maximum amortization period of 25 years, a down payment less than 20%, and the property must be owner occupied.

2. An insurable mortgage satisfies all the same criteria as above, but the down payment is 20% or greater.

 3. An uninsured mortgage is one where a minimum 20% down payment is made. The borrower is not required to take out mortgage default insurance. Uninsured mortgages can be used for investment or secondary properties that do not need to be owner-occupied, and can have an amortization period of up to 30 years.

Qualifying factors for insured, insurable and uninsured mortgages

  High ratio (insured) Insurable Uninsured
Down payment 5% - 19.99% 20% or more 20% or more
Home purchase price Less than $1 million Less than $1 million $1 million or more
Loan to value ratio (LTV) Greater than 80% 80% or less 80% or less
Maximum amortization period 25 years 25 years 30 years
Insured requirement Mandatory Optional Not available
Insurance is purchased by:  Borrower Lender N/A
Impact on the borrower The risk profile of the borrower is reduced because the chance of default is now backed by insurance. This allows lenders to provide lower mortgage rates.  The borrower has greater equity in the home. Lenders can opt to take out insurance on the mortgage to further hedge risk of default. The mortgage rate may be higher than an insured option, but less than an uninsured one.  Insurance cannot be taken out on the mortgage, meaning the lender shoulders all the risk. The mortgage rate offered to the borrower will be higher to reflect this. 

Insured vs. uninsured mortgages: Frequently asked questions

When is mortgage insurance required?


How much is the mortgage insurance premium, and how is it paid?


Can I avoid mortgage insurance?


Can I switch from an insured mortgage to an uninsured one?


Which type of mortgage is most common?


Are insured mortgages stress tested?


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Your guide to uninsured and insured mortgages

What is an insured vs. uninsured mortgage?

An insured mortgage is a loan that requires mortgage default insurance (CMHC insurance), due to the lower level of equity the borrower holds in their home. A mortgage must be insured if the buyer makes a down payment less than 20% when purchasing their home. They are also limited to a 25-year maximum amortization period, and the home’s purchase price must be below $1 million. The property must also be owner-occupied, meaning the buyer must dwell within it as their principal residence.

An uninsured mortgage applies to loans where the buyer has paid more than 20% down. Because they have a larger proportion of equity in their home, these home buyers are not required to take out mortgage default insurance, and can amortize their mortgage up to a maximum of 30 years. Uninsured mortgages can be taken out on properties that are not the buyers’ principal residence, such as rental or vacation homes. Refinanced mortgages must also be uninsured.

What is an insurable mortgage?

An insurable mortgage covers all the same criteria as an insured high-ratio mortgage, except the borrower has paid more than 20% down. This gives the lender the option to insure the mortgage through back-end insurance, and bundle the mortgage into an investment for additional profit. Unlike with an insured mortgage, the mortgage holder does not pay the insurance premiums as they are covered by the lender.

Because these mortgages can be insured, they are considered to pose less risk to the lender; the borrowers must also meet all the criteria set out by the insurer, such as a healthy credit score, and a minimum 80% loan-to-value ratio. This gives the lender room to price these mortgages more attractively – usually in a range between their insured and uninsured mortgage product pricing.

Also read: Should you always save a 20% down payment when buying a home?


How are mortgage premiums calculated?

Mortgage premiums are determined based on the size of your down payment, and resulting loan-to-value ratio; the higher this ratio, the larger your mortgage premium will be. The smallest possible premium charged by the CMHC is 0.6%, for LTVs up to and including 65%. The largest premium charged is 4%, for LTVs between 90.1% to 95%.

Loan-to-Value Premium on Total Loan
Up to and including 65% 0.60%
65.01% to 75% 1.70%
75.01% to 80% 2.40%
80.01% to 85% 2.80%
85.01% to 90% 3.10%
90.01% to 95% 4.00%
  • A minimum 5% down payment is required for properties priced at $500,000 or less. 
  • If the home costs between $500,000 and $999,999, the buyer must pay 5% on the first $500,000, and then 10% on the remainder. 
  • If the home costs $1,000,000 or more, the buyer must put at least 20% down. 


Who provides mortgage insurance in Canada?

Mortgage default insurance is offered by three main providers:

  • The CMHC, which is a Crown Corporation that manages the provision of housing supply in Canada. This corporation provides roughly 30% of all mortgage default insurance in Canada.
  • And two private companies, Canada Guaranty and Sagen

All of the providers charge the premiums based on the size of your down payment and total mortgage amount; whichever insurer you end up with usually depends on which one your lender or broker prefers.

Also read: CMHC insurance in your province

 

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