Insured, Insurable and Uninsured Mortgages

Jordan Clermont, BRX Mortgage INC. FSRA #13463

mortgages@jordanclermont.ca 

226 582 4983

When seeking a new mortgage, three primary classifications will likely influence the rate you receive. Understanding these differences is crucial for you.

Insured Mortgages

• In Canada, a mortgage is "insured" if the down payment is less than 20% of the home's purchase price.

• This insurance protects the lender (not the borrower) in case of default.

• Providers of mortgage insurance include CMHC, Sagen, and Canada Guaranty.

• Borrowers are responsible for paying the premiums, usually incorporated into the loan.

• Key conditions for insured mortgages:

  • Minimum down payment: 5% for the first $500,000 of the purchase price and 10% for any amount exceeding that.

  • Maximum purchase price: $1.5 million.

  • Maximum amortization period: 25 years.

First time home buyers or purchasers of a new build home.  Qualifying buyers who fall into this category may access an insured mortgage with an amortization period of up to 30 years.

Insurable Mortgage

• An insurable mortgage is for individuals making a down payment of 20% or more, meaning they are not required to purchase mortgage default insurance themselves.

• These mortgages typically apply to owner-occupied homes priced up to $1 million, with a maximum amortization period of 25 years.

• The lender, not the borrower, may choose to obtain and cover the cost of this insurance.

• Lenders do this to reduce their risk, which can lead to better funding rates or lower interest rates.

• For example, a $750,000 home purchase with a 20% down payment is an "insurable" mortgage, and the lender might decide to insure it.

Uninsurable Mortgage

• An uninsured mortgage lacks mortgage default insurance and often applies to loans not meeting criteria for insured or insurable mortgages.

• These mortgages typically have higher interest rates due to increased lender risk.

• A minimum 20% down payment is required to qualify.

• They offer flexibility with no maximum purchase price, suitable for homes exceeding $1 million.

• Longer amortization periods, often up to 40 years.

• Uninsured mortgages are commonly used for a wider range of property types, including rental properties, second homes, and other unconventional properties.

• For example, a $1.5 million home with a 25% down payment would be an uninsured mortgage due to the price exceeding the limit for insured or insurable status.

FAQ

1. What are the three mortgage classifications in Canada that influence interest rates?

Mortgages are primarily classified as insured, insurable, or uninsured, with each category carrying different qualification rules, pricing, and risk profiles for lenders.

2. What is an insured mortgage?

In Canada, a mortgage is classified as insured when a buyer makes a down payment of less than 20% of the home's purchase price.

3. Who does mortgage default insurance protect, and who pays the premium?

Mortgage default insurance protects the lender—not the borrower—in the event that the borrower defaults on their loan. The borrower pays the insurance premiums, which are typically rolled directly into the total mortgage loan balance.

4. Which organizations provide mortgage default insurance in Canada?

Mortgage default insurance is provided by CMHC, Sagen, and Canada Guaranty.

5. What are the standard qualification conditions for an insured mortgage?

• Down Payment: A minimum down payment of 5% applies to the first $500,000 of the purchase price, plus 10% on any amount above $500,000.

• Price Cap: The maximum allowable purchase price is $1.5 million.

• Amortization: The standard maximum amortization period is 25 years.

6. Can borrowers access a 30-year amortization on an insured mortgage?

Yes. Qualifying first-time homebuyers or buyers purchasing a newly built home can access an insured mortgage with an extended amortization period of up to 30 years.

7. What is an insurable mortgage?

An insurable mortgage applies when a borrower puts down 20% or more, meaning the borrower is not required to purchase mortgage default insurance.

8. What criteria must be met for a mortgage to be considered insurable?

• Down Payment: A minimum of 20% down.

• Property Use & Value: Typically applies to owner-occupied properties priced up to $1 million.

• Amortization: A maximum amortization limit of 25 years.

9. Who pays for the insurance on an insurable mortgage, and why?

The lender may choose to purchase and pay for portfolio insurance on the loan to lower its lending risk. This risk reduction allows the lender to access better funding costs, often translating into lower or more competitive interest rates for the borrower.

10. What is an uninsured mortgage?

An uninsured mortgage is a loan that does not have mortgage default insurance, typically because it does not meet the criteria for insured or insurable guidelines.

11. Why do uninsured mortgages usually carry higher interest rates?

Because there is no default insurance in place, the lender shoulders the entire risk of default, resulting in higher interest rates to compensate for that exposure.

12. What are the key features and flexibility options of an uninsured mortgage?

• Down Payment: Requires a minimum down payment of 20%.

• Purchase Price: No maximum purchase price limit, making it the required path for homes over $1 million (or over $1.5 million when not insured).

• Amortization: Offers longer amortization periods, often up to 40 years.

• Property Types: Accommodates a wider variety of financing needs, including rental properties, second homes, and unconventional properties.