The difference between insured and uninsured mortgages affects your down payment requirements, interest rates, and the total cost of borrowing. In simple terms, an insured mortgage requires mortgage default insurance (commonly through CMHC or another approved insurer), while an uninsured mortgage does not. These two mortgage types follow different rules and can lead to different costs over time.
Understanding the difference between insured and uninsured mortgage options can help buyers make more informed decisions when financing a home purchase.
Key Takeaways
- A mortgage with less than 20% down usually requires default insurance
- A mortgage with 20% or more down is typically uninsured, though some may qualify as insurable.
- Insured uninsured mortgage rates may differ because insured loans reduce lenders’ risk.
- Insured mortgages include a mortgage insurance premium, often added to the mortgage balance.
- Uninsured mortgages avoid the premium but may come with slightly higher interest rates.
- The right choice depends on your down payment, property type, and long-term financing plans.
Understanding Mortgage Default Insurance in Canada
Mortgage insurance protects the lender, not the borrower. If a borrower stops making payments, the insurance helps cover the lender’s loss. This insurance allows lenders to approve mortgages with smaller down payments. Without it, most buyers would need to put down at least 20% of the home price. Mortgage default insurance is commonly associated with CMHC, though other approved insurers also operate in Canada.
What Is an Insured Mortgage in Canada?
An insured mortgage is a mortgage that includes default insurance (often called CMHC-type insurance). In most cases, this applies when a buyer makes a down payment of under 20% of the purchase price. These loans are known as high-ratio mortgages. Since the lender’s risk is reduced by insurance, insured mortgages may offer more competitive interest rates. That’s one reason insured vs uninsured mortgage rates can look lower for insured loans.
What Is an Uninsured Mortgage?
An uninsured mortgage does not include mortgage default insurance. This usually happens when the buyer puts down 20% or more of the purchase price. These loans are often called conventional mortgages. Uninsured mortgages are common for:
- Larger down payments
- Higher-value properties
- Certain investment or rental properties
- Mortgage refinancing transactions
Where Insurable Mortgages Fit in the Comparison
Some mortgages fall into a middle category called insurable mortgages. An insurable mortgage typically involves a 20% or greater down payment, but still meets certain insurer guidelines. In these cases, lenders may insure the mortgage themselves through portfolio or low-ratio insurance.
Because the lender’s risk can still be reduced, insurable mortgages may qualify for rates similar to insured mortgages. However, insurable mortgages usually come with certain restrictions, such as:
- Purchase price limits
- Maximum amortization periods
- Property occupancy requirements
For most buyers, the practical comparison remains between insured and uninsured mortgages, but understanding the insurable category can help explain differences in rate offers.
The Difference Between Insured and Uninsured Mortgages
Before you look at the best mortgage rates, it helps to understand what you are actually comparing. The table below summarizes the most important differences in a clear, direct way.
| Factor | Insured Mortgage | Uninsured Mortgage |
|---|---|---|
| Typical down payment | Usually less than 20% | 20% or more |
| Default insurance | Required | Not insured |
| Who pays insurance premium | Usually borrower | No premium |
| Typical interest rate trend | Often lowest rates | Often slightly higher |
| Rules and restrictions | Must meet insurer rules | More lender flexibility |
| Common Uses | Smaller down payment purchases | Investment properties, high-value homes, refinancing |
Advantages of Insurable Mortgages
An insurable mortgage can offer some of the benefits of an insured mortgage while still allowing the buyer to make a larger down payment.
Potentially Lower Interest Rates
When a lender insures the mortgage internally, the loan carries less risk. This can lead to interest rates similar to insured mortgages, even though the buyer has a larger down payment.
Insurance Premium Often Covered by the Lender
In many cases, the lender covers the cost of mortgage insurance. When that happens, the borrower benefits from reduced-risk pricing without paying a separate insurance premium.
For buyers with 20% down who still qualify for insurer rules, an insurable mortgage can sometimes offer a balance between lower rates and avoiding direct insurance costs.
Advantages of Uninsured Mortgages
An uninsured mortgage provides more flexibility because the loan does not need to meet insurer guidelines.
While insured vs uninsured mortgage rates may differ, uninsured mortgages offer several practical advantages depending on the property and financing goals.
More Flexible Amortization Options
Uninsured mortgages may offer longer amortization periods, up to 30 years, depending on the lender. A longer amortization can help reduce monthly payments.
Suitable for Investment and Rental Properties
Many investment properties, secondary homes, or rental properties do not qualify under insured or insurable rules. In these cases, an uninsured mortgage is often the appropriate option.
Higher Purchase Price Flexibility
Insurable mortgages usually follow the insurer’s limits on property prices and eligibility. Uninsured mortgages allow buyers to finance higher-value homes that may exceed those limits.
Common Mortgage Insurance Misconceptions
Mortgage Insurance Protects the Borrower
Mortgage default insurance protects the lender, not the borrower.
Lower Interest Rates Always Mean Lower Costs
Lower insured rates may look attractive, but the premiums can increase the overall cost of borrowing.
20% Down Always Guarantees the Best Deal
A larger down payment removes the premium, but lender pricing and mortgage terms still matter.
Frequently Asked Questions About Mortgage Insurance
Are insured vs uninsured mortgage rates always different?
Often, yes. Mortgage rates can differ because insured mortgages reduce lender risk. That said, the best way to compare is to look at the rate and total cost, including any premium.
Do I need CMHC Insurance if I put 20% down?
In most cases, no. A 20% down payment usually means you qualify for an uninsured mortgage.
Is mortgage default insurance the same as mortgage protection insurance?
No, default insurance protects the lender. Mortgage protection insurance is optional and can help cover payments if the borrower faces certain life events.
Insured vs Uninsured
Choosing between an insured mortgage and an uninsured mortgage depends on your down payment, property type, and long-term financial goals. Insured mortgages can offer lower interest rates but include an insurance premium. Uninsured mortgages avoid the premium but may come with slightly higher rates. Comparing the two scenarios side by side can help you determine which mortgage structure fits your budget and homeownership plans.
To better understand how these mortgage options may affect your buying power, consider speaking with a local REMAX agent who can guide you through the next steps.
