Insured vs. Uninsured Mortgage in Canada: What Homebuyers Need to Know

Buying a house is one of the most important financial decisions you'll ever make and understanding your mortgage options makes a huge difference. And not just how much you pay for the house monthly but also, how much loan you have to pay.

Let's say you find a place that you instantly fall in love with in a great neighborhood. But when you sit down with the mortgage broker, they start throwing around terms you've never heard before like ‘insured mortgage' or ‘uninsured mortgage'.

Understanding these terms will help you choose the option that's right for you and that will cost you less money. In this guide, we'll break down insured vs. uninsured mortgage options in Canada, how they impact interest rates, renewals, and eligibility, and why it's important to learn the difference more than most buyers realize.

What Is an Insured Mortgage?

An insured mortgage is a home loan that is protected by mortgage default insurance. In Canada, this insurance is required when the borrower makes a down payment of less than 20% of the home's purchase price.

This insurance is not for the buyer's protection, it's to protect the lender in case the borrower defaults and can't make payments anymore. The three main insurers in Canada are:

• CMHC (Canada Mortgage and Housing Corporation)
• Sagen (formerly Genworth)
• Canada Guaranty

The insurance premium is calculated as a percentage of the loan amount and is usually added to the mortgage.

What Is an Uninsured Mortgage?

An uninsured mortgage is a loan where the buyer puts down 20% or more of the home's value. Because the loan is considered less risky, the lender doesn't require mortgage default insurance.

This type of mortgage often applies to:

• Conventional home purchases with 20%+ down
• Home purchases over $1 million, though it's not eligible for mortgage insurance
• Mortgage refinances
• Some rental and investment properties

Insured Mortgage vs. Uninsured Mortgage

Insured and uninsured mortgages are sometimes referred to as ‘insurable and uninsurable' by Canadian lenders sometimes. There's a slight distinction between insured and uninsured mortgages.

• Insurable mortgages: These meet criteria that would allow them to be insured, even if the borrower or lender chooses not to insure them.
• Uninsurable mortgages: These do not meet the criteria for insurance at all, such as homes over $1 million, amortization periods over 25 years, or mortgage switches at renewal without requalification.

Let's understand the difference better with an example. Let's assume a person puts down 15% on their $400,000 house. Because they didn't have 20%, their mortgage automatically became insured. They had to pay mortgage insurance premiums, but they got a lower interest rate than another person who put down 25%.

The lower rate with insurance might seem confusing but here's how it works; when the government backs your loan, lenders feel safer. Safer lenders offer better rates.

But here's the catch: the person who put down 15% will have to pay about $180 extra per month for that insurance. For a time period of over 25 years, that's $54,000. So yes, they got a lower rate, but they're paying for the privilege.

The other person who paid 25% and has an uninsured mortgage? They get a slightly higher rate, but no monthly insurance premiums. Sometimes the math works out better for insured mortgages, sometimes for uninsured. It depends on the specific numbers.

Insurable vs. Uninsurable Mortgage Eligibility Criteria

Now this is where things get complex. Just because you want an insured mortgage doesn't mean you can get one. There are rules and lots of them. To get an insurable mortgage, you need to check several boxes:

• House price under $1 million (in most areas)
• Mortgage amount under certain limits
• The property needs to be your primary residence (usually)
• Your amortization can't be longer than 25 years

If you buy a $1.2 million condo, there's a high probability that no insurance company will touch it because the price is over a million. You might have a great credit score and a solid income but you'll have no option other than an uninsured mortgage, which means higher rates and stricter qualification rules.

Sometimes, even if you put down 20% or more, your mortgage might still be ‘insurable' if it meets all the other criteria. The lender might choose to insure it anyway to get better funding costs, then pass some of those savings to you in the form of better rates.

But if your mortgage is ‘uninsurable' because the house costs too much, or you want a 30-year amortization, or you're buying an investment property, you're in a different lane entirely.

Insured vs Uninsured Mortgage Rates

This is where people get really confused, and honestly, you can't blame them. The rate differences between insured vs. uninsured mortgage rates change constantly, and they might not always make sense.

You might assume that putting down more money would get you a better rate. But in many cases, insured mortgages come with lower interest rates than uninsured ones. This is because the risk is lower for lenders and if the borrower defaults, the insurer will cover the lender's loss.

Lenders often offer discounted rates on insured mortgages. This means that someone putting down just 5% might get a better rate than someone putting down 25%.

• Insured mortgage rate: Lower (e.g. 4.89%)
• Uninsured mortgage rate: Higher (e.g. 5.19% or more)

That said, the insured borrower also pays an upfront premium which is between 2.8% and 4.0% of the loan, which adds to the cost.

There are some patterns to how the rates change too. Oftentimes when the Bank of Canada is cutting rates, insured mortgage rates tend to drop faster. When they're raising rates, uninsured rates sometimes stay steadier longer. Timing matters a lot since predicting rate movements is basically impossible.

The Insured vs. Uninsured Mortgage Renewal

Most people don't think about the rates until it's too late. Renewal time can get a little tricky, especially for uninsured borrowers. Here's how it works:

• Insured mortgage renewal: Usually straightforward. If you stay with the same lender, no requalification is needed. If you switch lenders, your mortgage is still considered insured, so you can look around for better rates without hassle.
• Uninsured mortgage renewal: Lenders may require requalification, especially if you're switching institutions. If your income or debt situation has changed, you may face hurdles.

Being uninsured gives you fewer options at renewal, so make sure you're prepared to show updated financials if needed. You might face stricter income verification, especially if your financial situation has changed.

Insured vs. Uninsured Mortgage: What Should You Consider?

If you're a first-time homebuyer or have limited savings for a down payment, an insured mortgage might be the only route available to you. Make sure that you:

• Budget for the insurance premium
• Stay under the $1 million home threshold
• Choose a 25-year amortization or less to remain eligible

Buyers with strong finances and a down payment of 20% or more often prefer uninsured mortgages because:

• They avoid paying the insurance premium
• They can buy more expensive homes
• They may qualify for longer amortizations

But remember that these mortgages may come with slightly higher interest rates.

Get Professional Advice

At the end of the day, there's no universally ‘better' choice between insured vs. uninsured mortgages. It depends on your specific situation, the current rate, your long-term plans, and how long you plan to stay in your new house.

Just make sure you factor in all things including the premium, the interest rate, and your monthly payments. Sometimes, an insured mortgage with a slightly higher overall cost gives you a better rate and a faster path to homeownership. Other times, putting 20% down and avoiding fees is the smarter move.

The best mortgage for you is the one you can comfortably afford and understand completely. If you need professional help choosing the options that are best for you, contact us today. Our experienced brokers have helped many Canadians make the best decision based on their individual needs.