An Insured Mortgage (aka High-Ratio Mortgage) is covered by a type of insurance that protects the lender/bank against default. This Default insurance is a mandatory requirement in Canada for those mortgages where the borrower puts a down payment of less than 20% of the purchase price.
Most people are familiar with CMHC as the main provider of this type of coverage, but Sagen & Canada Guaranty are two other entities that currently provide the necessary coverage for Insured mortgages. It is important to note that these insurance providers are currently limited to a maximum purchase price of up to $1 million. This means that if the purchase price exceeds this price point, then there is no default insurance product available for lenders/banks which in turn, means that you will be required to have a 20% (or more) down payment for those purchases that exceed $1 million.
Although it is mandatory for purchase’s made with less than 20% down, most lenders also prefer this coverage because it ultimately lowers their risk of lending.
To obtain this default insurance, the borrower is responsible to pay the premium associated with the policy which is typically tacked on to your mortgage. In other words, the lender/bank provides the additional funds necessary to pay for the insurance, but since you will be making your scheduled mortgage payments, you will ultimately be paying for the premium as well.
Having said that, it’s not all bad. Since insured mortgages lower the overall risk to the lender, they can now offer lower rates to the borrower because they do not need to mitigate the risk that they would have had to carry by not having the default insurance.
In addition, if you were to switch your mortgage from your existing bank/lender to a competitor, you may be able to transfer the policy coverage over to the new lender. In other words, you would potentially benefit from the lowest possible rates for a long stretch because the coverage has carried over to the new lender. Of course, there are specific conditions that you must meet, but the potential is there.
For more information on default insurance, insured mortgage, and other insurable products, below are a few resources you could refer to:
Alternatively, you are welcome to reach out to us. We’re always here to help – (905) 455-5005