Insured vs. Insurable vs. Uninsured Mortgages
When you’re shopping for a mortgage, you may hear the terms insured, insurable, and uninsured. They sound similar, but they have important differences that can affect your financing options, interest rate, and mortgage qualification.
Understanding what each one means can help you make more informed decisions and avoid surprises during the home-buying process.
Insured Mortgages
An insured mortgage is required when your down payment is less than 20% of the home’s purchase price. In Canada, these mortgages must be backed by mortgage default insurance through CMHC, Sagen, or Canada Guaranty. The maximum purchase price or an insured mortgage is $1.5 million, and the maximum amortization is 25-years – unless you are a first-time homebuyer who can request a 30-year amortization.
The insurance protects the lender—not the borrower—if the mortgage goes into default. The insurance premium is typically added to the mortgage balance and paid over the life of the loan.
Insurable Mortgages
An insurable mortgage typically has a 20% or greater down payment, so you don’t pay a mortgage insurance premium. However, the mortgage still meets the insurer’s eligibility requirements.
To generally qualify as an insurable mortgage, it must meet criteria such as:
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At least a 20% down payment (80% loan-to-value or less)
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An amortization period of 25 years or less
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A purchase price under $1,000,000
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A property that meets insurer guidelines
Because lenders can bulk insure these mortgages, they may offer more competitive interest rates than uninsured mortgages.
Uninsured Mortgages
An uninsured mortgage also requires at least a 20% down payment, but it does not have to qualify within the insured mortgage guidelines.
A mortgage may be considered uninsured because it has:
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An amortization period up to 30 years.
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A property that falls outside insurer guidelines.
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Certain refinance or financing situations that aren’t eligible for insurance.
Since the lender takes on more risk, uninsured mortgages may have different pricing and/or qualification requirements.
Mortgage Myth vs. Truth
Myth: Putting 20% down means my mortgage is uninsured.
Truth: Not necessarily. While you won’t pay a mortgage insurance premium with a 20% or greater down payment, your mortgage may still be insurable if it meets the insurer’s eligibility requirements. That allows the lender to insure the mortgage, even though you don’t pay for the insurance.
Myth: Mortgage default insurance protects me if I can’t make my payments.
Truth: Mortgage default insurance protects the lender, not the borrower. It helps reduce the lender’s risk if a mortgage goes into default. However, there are many provisions available through the insurers to support borrows during a life event.
Myth: An uninsured mortgage is always the better option.
Truth: Not always. An insurable mortgage may qualify for more competitive pricing because lenders have the option to insure it. The right mortgage depends on your financial situation, the property you’re buying, and your long-term goals.
A Quick Rule of Thumb
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Insured: Less than 20% down payment. Mortgage default insurance is required.
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Insurable: 20% or more down payment and meets insurer eligibility requirements. The borrower does not pay the insurance premium.
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Uninsured: 20% or more down payment and does not have to meet insurer eligibility.