Understanding Mortgage Insurance in Canada: Insured, Insurable, and Uninsured Mortgages

When securing a mortgage, many homebuyers focus on getting the lowest interest rate—but do you really understand the total cost of borrowing? Mortgage insurance plays a critical role in your financing, affecting rates, loan eligibility, and long-term costs. Whether your mortgage is insured, insurable, or uninsured can determine how much interest you’ll pay over time and whether you’ll need to pay a hefty insurance premium.

Before you commit, let’s break down what these terms mean and why understanding them can save you tens of thousands of dollars.

What Is Default Insurance?

Mortgage default insurance, often called mortgage loan insurance, is required for homebuyers who put down less than 20% of the property’s purchase price. This insurance protects the lender, not the borrower, in case of mortgage default.

Insured and insurable mortgage rates are often lower than uninsured rates because the risk is removed from the lender or greatly lowered by having the file default insured. Therefore, the rate is lower. However, it’s important to remember that the large premium is added into the mortgage and amortized over the life of the mortgage. This means that while the rate is lower, the lender will likely make more money in interest over the term as the insurance cost is added to the principal balance and repaid over 25 years.

This is called the total cost of borrowing—it is important for clients to understand the total cost of borrowing, not just the rate. Anytime you can afford to have a lower mortgage balance (by increasing your down payment), you will likely save more money because the principal amount is smaller.

That being said, waiting to save 20% for a down payment is not always realistic, as it could take a lifetime for some people. However, it is very important to understand the full financial picture and have a strong grasp of the total cost of borrowing when purchasing a home and obtaining a mortgage.

Ok so now you know what default insurance is. Now you need to know when it applies to you.

Insured Mortgages

• Key Features:

  • Required when the down payment is less than 20%.

  • Maximum purchase price of $1,499,999.99

  • Must meet default insurer guidelines.

  • Lower interest rates due to reduced lender risk.

  • Owner Occupied

    
    

• Insured Guidelines:

  • Minimum 5% down payment for homes up to $500K; 10% on the portion above $500K.

  • Maximum amortization of 25 years.

  • Minimum credit score of 600 (higher preferred by lenders).

  • Maximum Gross Debt Service (GDS) of 39% and Total Debt Service (TDS) of 44%.

  • Property must be owner-occupied.

  • Purchase price must be under $1M.

    
    
    
    

• Key Reminder:

  • Once a file is insured, it remains insured until the mortgage is broken. If refinanced, it becomes uninsured.

    
    

Insurable Mortgages

• Key Features:

  • 20%+ down payment but still meets insurer guidelines.

  • Maximum purchase price of $1M.

  • Often lower rates than uninsured mortgages.

  • Lenders may choose to insure for portfolio purposes.

  • Owner occupied

    
    

• Insured Guidelines:

  • Must meet insured mortgage guidelines (same as insured category).

  • Can be insured at the lender’s discretion, even with 20%+ down.

  • Cannot be used for refinances.

    
    

• Key Reminder:

  • Once a file is insured, it remains insured until the mortgage is broken. If refinanced, it becomes uninsured.

    
    

Uninsured Mortgages

• Key Features:

  • 20%+ down payment but does not meet insurer guidelines.

  • No purchase price limit.

  • Typically higher interest rates.

  • Not eligible for default insurance.

  • Could be a rental or owner occupied

    
    

• Guidelines:

  • No insurer restrictions.

  • Can be used for refinances.

  • Typically required for purchases over $1M.

  • Amortization periods over 25 years allowed.

    
    

• Key Reminder:

  • Uninsured from the start and remains that way.

A key reminder: Clients do not need to follow up or inquire directly with a default insurance provider, as the lender or broker handles this process. However, it is crucial to understand the costs associated with default insurance, as they are added into the mortgage and amortized over the life of the loan. Note you can live in part of an insured home and have a rental suite within the home and it be still insured or insurable; however if you are buying a home and the intended use is rental only - this home will be considered uninsured as its intended use at the time of closing is for rental.

If you buy and sell, you may be able to port your default insurance instead of paying for it twice. If your original mortgage was insured and you are selling and purchasing again, it is essential to ask your mortgage broker to verify where the current mortgage is insured. This is a very important step but could be easily overlooked by someone inexperienced or in a rush. A mistake here could cost you tens of thousands of dollars depending on your mortgage size. Always remind your mortgage professional that your original mortgage was insured at the time of purchase.

Default Mortgage Insurers in Canada

Canada has three main mortgage default insurers:

Insurer	Role	Contact
CMHC	- Government-backed insurer.- Provides default insurance to protect lenders.- Has stricter qualification rules.	1-800-668-2642
Sagen	- Private insurer offering flexible programs.- Allows self-employed and alternative income verification.- Competes with CMHC and Canada Guaranty on product offerings.	1-800-511-8888
Canada Guaranty	- Private insurer with a focus on stability.- Often provides innovative programs.- Competes with CMHC and Sagen on terms and rates.	1-877-244-8422

CMHC Mortgage Loan Insurance Premiums

The Canada Mortgage and Housing Corporation (CMHC) determines insurance premiums based on the loan-to-value (LTV) ratio. The smaller the down payment, the higher the premium.

Loan-to-Value (LTV) Ratio	Premium on Total Loan Amount
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%

Here is an example, if a borrower makes a 5% down payment (resulting in a 95% LTV), the insurance premium would be 4.00% of the loan amount. These premiums can either be paid upfront or added to the mortgage balance.

Final Thoughts

Understanding how mortgage insurance works can help both homebuyers and mortgage professionals navigate financing options more effectively. Once a mortgage is insured, it remains insured until the mortgage is broken. If refinanced, it becomes uninsured.

For those purchasing homes with less than a 20% down payment, insured mortgages offer lower interest rates but require default insurance. If you have a larger down payment and still meet insurer guidelines, you may qualify for an insurable mortgage with lender discretion. However, for larger purchases or refinances, you’ll likely require an uninsured mortgage, which comes with different lending terms.

For personalized mortgage advice, reach out by clicking here www.emilycallme.com to book a discovery call today for all your mortgage questions and concerns.