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Key Takeaways
1. Aninsured mortgage– also referred to as ahigh-ratio mortgageortransactionally-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?
Mortgage insurance is required for mortgages with loan-to-value ratios of 80% - 95% (less than 20% down paid at the time of purchase). The borrower must take out mortgage default insurance from one of the three Canadian providers: The Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty or Sagen.
How much is the mortgage insurance premium, and how is it paid?
Mortgage default insurance premiums range from 0.6% - 4% of the total mortgage amount. The size of your mortgage default insurance premium depends on the size of the down payment you make on the purchase of your house, and the resulting loan-to value ratio. The premium will be a percentage of the mortgage size, with LTVs up to and including 65% requiring a 0.6% premium, and up to 4% for mortgages with a 95% LTV. Mortgage insurance premiums are rolled up into your regular mortgage payments, and amortized over the length of your mortgage.
Can I avoid mortgage insurance?
The only way to avoid mortgage insurance is to make a minimum 20% down payment on your home purchase and have a loan-to-value ratio of at least 80%.
Can I switch from an insured mortgage to an uninsured one?
The only way to change from an insured mortgage to an uninsured one is to increase your loan-to-value ratio to above 20%. This is possible via a number of methods, such as accelerating your payments or making a lump sum payment on your mortgage to pay down a greater portion of your principal; at renewal time, you can choose to renegotiate your mortgage and switch to an uninsured or insurable option. This option will also be possible if you’ve been making regular payments on your mortgage over time – you will eventually exceed 20% equity, and can then choose to change your mortgage type at renewal time. Once you have minimum 20% equity, you can also choose to break your mortgage and refinance to an uninsured rate.
Which type of mortgage is most common?
As both home prices and mortgage rates have sharply increased in recent years, uninsured mortgages are becoming more common; according to the latest Residential Mortgage Industry Report from the CMHC, across chartered banks, 73% of outstanding residential mortgages were uninsured in the second quarter of 2023.
This is because fewer homes are priced below the $1 -million mark, and many borrowers need to make larger down payments today in order to have the debt ratios required to pass the mortgage stress test.
“This proportion is much higher than in 2016, when only 45% of mortgages were uninsured,” states the CMHC’s report. “The increase is partly caused by past regulatory changes that tightened mortgage insurance eligibility rules. It’s also caused by rising house prices in many markets: more properties are now near or above the allowed insurable limit of $1 million. The increasing difficulty of first-time homebuyers to become homeowners is likely another contributing factor, as many would require mortgage insurance.”
Are insured mortgages stress tested?
Yes – borrowers applying for new insured mortgages are stress tested at the same Mortgage Qualifying Rate (MQR) as uninsured or insurable borrowers: a rate of 5.25% or their contract rate plus 2%, whichever is greater.
However, insured mortgage holders may avoid being re-stress tested when switching to a new lender at renewal time. According to Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), transactionally-insured mortgage borrowers won’t be subjected to stress testing when switching, as long as their original mortgage amount or amortization period does not change.
Also read: How to stress test your mortgage
WATCH: How much mortgage can I afford?
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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
- Ontario CMHC insurance
- British Columbia CMHC insurance
- Quebec CMHC insurance
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Mortgage down payment
A mortgage down payment is the amount of money you pay upfront when purchasing a home. A down payment, typically expressed as a percentage, is calculated as the dollar value of the down payment divided by the home price.
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CMHC mortgage insurance
Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan.
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Maximum mortgage affordability in Canada
When shopping for a home, it’s important to determine the maximum mortgage and home price you can qualify for. Mortgage affordability refers to how much you can afford to borrow from a mortgage provider - your maximum affordability is simply the maximum amount that you can borrow.
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First-time home buyer programs
Being a first-time home buyer can be both exciting and stressful – but it also tends to be very expensive, especially if you don’t have any pre-existing assets to help you get a mortgage.
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