Quick Answer
The whole thing hinges on your down payment. Less than 20% down? That’s an insured mortgage, backed by default insurance (CMHC, Sagen, or Canada Guaranty). Here’s the upside: that insurance lowers the lender’s risk, so you actually get a lower rate. Put 20% or more down and you’re uninsured. You skip the premium, but you’ll usually pay a slightly higher rate. The one catch with insured mortgages is that the home has to be under $1.5 million, and there’s a limit on how long you can stretch the payments (with a few exceptions for first-time buyers and new builds).
Key Takeaways
- Your down payment decides it: under 20% is insured, 20% or more is uninsured.
- Insured can mean a lower rate: the insurance lowers the lender’s risk, so they pass on a better rate.
- Insured comes with limits: the home must be under $1.5 million, with a cap on amortization.
- The premium gets financed: it’s added to your mortgage, and you only pay the PST upfront here in Ontario.
All mortgages in Canada (regardless of the bank) fall into one of 2 categories: Insured or uninsured mortgages. One of the great benefits of being a first-time home buyer in Canada is the option to purchase with as little as 5% down. This would be considered an ‘insured mortgage’. Rather, if you were to buy a rental property with 20% down, this would be considered an ‘uninsured mortgage’. Let’s break down the difference between insured vs. uninsured mortgages.
What is insured mortgage in Canada?
An ‘insured mortgage’ is a mortgage backed by one of the 3 major default mortgage insurers in Canada: Canada Housing Mortgage Corporation (CMHC), Sagen (formerly Genworth), and Canada Guaranty. Due to the higher risk associated with lending beyond 80% of the property value, any home purchased in Canada with less than 20% down MUST be insured by one of the 3 insurers – this is mandatory as set out by OSFI, a government agency that supervises over 400 federally regulated financial institutions (the assumption here is that you are seeking a mortgage through any regulated bank/lender in Canada. Note: only Schedule A banks in Canada are qualified to lend insured mortgages).
With an insured mortgage (5% – 19.99% down payment) the borrower is responsible for paying an insurance premium which is added to the mortgage you are borrowing. The rate of this premium depends on how much you are putting down and decreases at each increment of 5% (for example, the highest premium is payable with 5% down, but once 10% down is achieved, the premium is reduced by a significant amount).
What is uninsured mortgage in Canada?
In Canada, mortgages don’t need to be insured if your down payment represents 20% or greater. If you already own a home, there are also reasons why your mortgage might not be insured or insurable. Here are some examples that fall into the uninsured mortgage category in Canada:
- A mortgage for any purchase over $1,000,000 is an uninsurable mortgage
- Investment properties in Canada cannot be insured
- Any mortgage with an amortization greater than 25 years is an uninsurable mortgage
- Refinances or Equity Take Outs cannot be insured
- All B lender mortgages cannot be insured
- Private mortgages cannot be insured
What is an insurable mortgage in Canada?
Don’t be confused by the term ‘insurable’. There are insured mortgages, uninsured mortgages, and ‘insurable’ mortgages.
Just like an insured mortgage in Canada, insurable mortgages can benefit from a lower rate than uninsured mortgages, without having to pay any insurance premium. The only caveat is that the amortization cannot exceed 25 years. This is often where homeowners debate whether it’s more important to have a lower monthly payment, or a lower interest rate.
Do interest rates change between insured vs. uninsured mortgages?
Yes. This confuses borrowers the most when they inquire about rates.
The best rates advertised (ads, radio, tv, etc.) are for insured mortgages in Canada. Uninsured mortgages have higher interest rates and are not often advertised to avoid confusion.
When it comes to insured vs. uninsured mortgages in Canada, there are benefits to both. It’s important to truly understand the different and how each can be used to your advantage to help accelerate your equity growth and build your net worth.
Call us today with your questions! (905) 455-5005.
Frequently Asked Questions
Is an insured or uninsured mortgage better?
Neither one wins every time. Insured gets you into a home sooner and at a lower rate, but you’ll pay a premium and live with the price and amortization caps. Uninsured skips both. The right call depends on your down payment and the place you’re buying, and that’s exactly what we’ll walk you through.
Do I pay the premium upfront?
No. It gets rolled into your mortgage and paid off over time. The only piece you cover upfront is the PST on it, and only here in Ontario.
Can I insure a home over $1.5 million?
You can’t. Default insurance stops at $1.5 million, so anything at or above that needs at least 20% down.
Got questions about your mortgage? Contact us today or call 905-455-5005. No pressure, no obligation.