Understanding Insured, Insurable, and Uninsured Mortgages
When shopping for mortgages, you’re likely to come across terms like insured, insurable, and uninsured mortgages.
These classifications impact the type of property you can purchase, how much you need for a down payment, and the interest rates available to you.
Let’s break down what these terms mean, their requirements, and examples to clarify how they apply in different scenarios.
Insured, Insurable and Uninsured
Insured Mortgages
An insured mortgage is backed by mortgage default insurance, which protects the lender in case the borrower defaults. This type of mortgage is mandatory if your down payment is less than 20% of the home’s purchase price.
Mortgage default insurance is provided by organizations like CMHC (Canada Mortgage and Housing Corporation), Sagen, or Canada Guaranty.
Key Features:
- Down payment requirement: 5% for the first $500,000 and 10% for amounts over $500,000 (up to $1.5 million).
- Maximum purchase price: $1.5 million.
- Amortization period: Limited to 25 years.
- Insurance premiums: Paid by the borrower, typically added to the mortgage amount.
Example:
- You’re purchasing a $600,000 home with a 10% down payment ($60,000). Since your down payment is less than 20%, you’ll need an insured mortgage. The lender will secure insurance, and the premium cost will be added to your loan.
Insurable Mortgages
An insurable mortgage meets the same qualification criteria as an insured mortgage but doesn’t require the borrower to purchase insurance directly. Instead, the lender may obtain insurance for the loan on their own, often to benefit from lower risk and better interest rates.
Key Features:
- Down payment requirement: At least 20%.
- Maximum purchase price: $1 million.
- Amortization period: Limited to 25 years.
- Insurance costs: Paid by the lender (not the borrower).
- Typically available for owner-occupied properties.
Example:
- You’re buying a $750,000 home and making a 20% down payment ($150,000). While your mortgage doesn’t require borrower-paid insurance, the lender may choose to insure it to access lower funding costs. This is considered an insurable mortgage.
Uninsured Mortgages
An uninsured mortgage does not involve mortgage default insurance and typically applies to loans that don’t meet the criteria for insured or insurable mortgages. These loans often have higher interest rates because of the increased risk to the lender.
Key Features:
- Down payment requirement: At least 20%.
- No maximum purchase price: Suitable for homes over $1.5 million.
- Amortization period: Can extend up to 30 years.
- Property types: Includes rental properties, second homes, and unconventional properties.
Example:
- You’re purchasing a $1.5 million home with a 25% down payment ($375,000). Since the property exceeds $1 million, it doesn’t qualify for mortgage default insurance. This makes the mortgage uninsured, and lenders will assess the loan accordingly.
Quick Comparison
| Feature | Insured | Insurable | Uninsured |
|---|---|---|---|
| Minimum Down Payment | Less than 20% | 20% or more | 20% or more |
| Maximum Purchase Price | $1.5 million | $1.5 million | No limit |
| Amortization Period | Up to 25 years | Up to 25 years | Up to 30 years |
| Who Pays Insurance? | Borrower | Lender | Not applicable |
| Typical Property Types | Owner-occupied | Owner-occupied | High-value/rental homes |
Why It Matters
Understanding these categories helps you determine which type of mortgage aligns with your financial situation and property goals. It can also influence your borrowing costs and the lenders available to you.
Additional Considerations:
- First-time homebuyers often lean towards insured mortgages due to the lower down payment requirements.
- High-value properties are generally financed with uninsured mortgages due to their purchase price.
- Rental properties typically require uninsured mortgages.
By identifying where your mortgage fits into these categories, you can better prepare for discussions with your broker or lender.
Get Expert Guidance
Still unsure about which mortgage type is right for you? Speak with a mortgage professional to explore your options and find the solution that best meets your needs.
