Insured vs. Uninsured Mortgages
The difference between insured and uninsured mortgages affects how much you need for a down payment, whether default insurance premiums need to be factored in, and how much interest is paid over time. Mortgages in Canada can either be insured, insurable, or uninsured.
Insured mortgages offer lower interest rates and allow borrowers to purchase a home with as little as 5% down, but they require mortgage default insurance. Uninsured mortgages have slightly higher interest rates, require a 20% minimum down payment, but do not require default insurance.
This guide breaks down how insured and uninsured mortgages work in Canada. We’ll compare typical mortgage rates and explain which option may cost more or less depending on your situation.
Key Takeaways
- Insured mortgage rates are usually lower, but include insurance premiums that increase the total cost.
- Uninsured mortgages have higher rates, but avoid insurance and may cost less over time.
- Increasing your down payment can reduce insurance premiums while still qualifying for lower insured rates.
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What Is an Insured Mortgage?
An insured or high-ratio mortgage is a loan where the borrower makes a down payment of less than 20% of the purchase price. These mortgages require the borrower to pay a premium for mortgage default insurance, which protects the lender in the event of default. The default insurance premium can either be paid up front or added to the mortgage balance. The premium charged is based on the loan-to-value (LTV) ratio, and the amount payable varies with the mortgage amount.
High-ratio mortgages have restrictions, including a maximum purchase price of less than $1.5 million and a 25-year amortization. The amortization can be extended to 30 years for first-time homebuyers (FTHB) or for anyone purchasing a new build.
What Is an Uninsured Mortgage?
An uninsured or conventional mortgage is a loan where the borrower makes a down payment of 20% or more and does not require mortgage default insurance. Conventional mortgages have no restrictions on the maximum purchase price or amortization.
This type of mortgage applies to properties valued over $1.5 million, second properties, investment properties, and properties valued at $1 million or more with amortizations exceeding 25 years. Uninsured mortgages are used when either the property or the borrower doesn’t qualify for insured or insurable mortgages.
When Would You Need an Insured Mortgage?
Insured mortgages are required when a borrower does not meet the minimum down payment threshold for an uninsured or insurable mortgage. Insured mortgages must meet strict guidelines set by Canadian mortgage insurers. Beyond eligibility, some borrowers may choose insured mortgages to access better rates, even when they could put 20% down. Common reasons when an insured mortgage is required or may make sense include:
- You put down less than 20% of the purchase price.
- The purchase price of the property is less than $1.5 million.
- The amortization is 25 years or less (30 years for first-time homebuyers and new builds).
- The property is owner-occupied.
- Your debt service ratios fall within insured guidelines, and you want to access better rates.
When Would You Need an Uninsured Mortgage?
Uninsured mortgages are required when the property doesn’t meet the requirements for an insured mortgage or when the borrower chooses to put down 20% or more of the purchase price to avoid paying mortgage default insurance. Common reasons when an uninsured mortgage is required or may make sense include:
- You put down 20% or more of the purchase price.
- The property is valued at $1 million or more and disqualifies you from an insurable mortgage.
- The property is valued at $1.5 million or more and disqualifies you from an insured mortgage.
- The amortization exceeds 25 years.
- The property will be used as an investment property.
- The purpose of the mortgage is a refinance.
Comparing Insured vs. Uninsured Mortgages
Choosing between an insured and uninsured mortgage is not only about your down payment. It directly affects your interest rate, total borrowing cost, and your borrowing flexibility.
| Feature | Insured Mortgage | Uninsured Mortgage |
|---|---|---|
| Down Payment | 5% to 19.99% | 20% or more |
| Mortgage Default Insurance | Required | Not required |
| Typical Interest Rates | Lower due to reduced lender risk | Higher due to increased lender risk |
| Purchase Price Limit | Up to $1.5 million | No maximum |
| Amortization | Up to 25 years (30 for FTHB or new builds) | Can exceed 25 years |
| Property Type | Owner-occupied only | Owner-occupied and rental properties |
| Refinancing | Not eligible | Fully eligible |
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Mortgage Rates for Insured vs Uninsured Mortgages
An insured borrower today may access 4.04%, while an uninsured borrower may receive 4.54%.
On a $500,000 mortgage with a 25-year amortization:
Insured payment: $2,681
Uninsured payment: $2,682
View current mortgage payment examples using today’s rates.
See how insurance type affects your qualification income.
Why Insured Mortgages Have Lower Rates
Insured mortgages have lower interest rates because they carry less risk for lenders. When a mortgage is backed by the Government of Canada (GoC) and protected against default risk by Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty, the lender is protected in the event the borrower defaults on payments. That protection allows lenders to access cheaper funding through mortgage-backed securities (MBS). The result is a lower cost of lending, which is passed on to borrowers as lower mortgage rates.
Why Uninsured Mortgage Rates Are Higher
Uninsured mortgage rates are higher because the lender assumes the full risk of the loan with no added protection from default insurance. Unlike insured mortgages, which the federal government backs through default insurers, uninsured mortgages require lenders to hold more capital and price in a higher risk premium. The combination of higher risk and higher funding costs is reflected in a higher interest rate.
Who Pays for Default Insurance on an Insured Mortgage?
Mortgage default insurance is paid by the borrower, not the lender, even though it protects the lender against default. The premium can either be added directly to the mortgage amount and paid over time as part of regular mortgage payments, or up front as part of your closing costs.
Most borrowers opt to include the premium in the mortgage, making it a part of the mortgage balance. This means interest will be calculated on the premium, as it’s now part of your mortgage, and paid over the life of the loan. The premium cost is based on the loan-to-value ratio, with higher premiums applied when the down payment is smaller and decreasing as you put down more.
How Insured vs Uninsured Rates Affect Your Monthly Payment
One of the biggest misconceptions is that a lower insured mortgage rate always leads to lower monthly payments. In reality, adding the mortgage default insurance premium to the loan increases the total amount borrowed, which can offset some of the savings from a lower rate. In many cases, putting more down while staying under 20% can offer the best balance.
As the down payment increases from 5% to 10% to 15%, the mortgage insurance premium decreases, reducing the total loan amount and the interest paid over time. At the same time, the borrower still benefits from lower insured mortgage rates, which are typically more competitive than uninsured pricing.
This combination often results in lower monthly payments and less total interest paid over the mortgage term. If you have a higher down payment saved, putting down between 15% and 19.99% is the most strategic middle ground for borrowers focused on overall cost savings.
| Insured Mortgage (5% Down) | Insured Mortgage (10% Down) | Insured Mortgage (15% Down) | Uninsured Mortgage (20% Down) | |
|---|---|---|---|---|
| Purchase Price | $500,000 | $500,000 | $500,000 | $500,000 |
| Down Payment | $25,000 | $50,000 | $75,000 | $100,000 |
| Mortgage Amount (before insurance) | $475,000 | $450,000 | $425,000 | $400,000 |
| Insurance Premium | $19,000 (4.00%) | $13,950 (3.10%) | $11,900 (2.80%) | $0 |
| Total Mortgage Amount | $494,000 | $463,950 | $436,900 | $400,000 |
| Interest Rate | 4.04% | 4.04% | 4.04% | 4.54% |
| Monthly Payment (25-year amortization) | $2,609.36 | $2,450.54 | $2,307.67 | $2,222.80 |
| Total Interest (5-year term) | $92,901.25 | $87,250.07 | $82,163.08 | $84,785.43 |
The Mortgage Stress Test Still Applies
Regardless of how much you put down, whether you are taking an insured or uninsured mortgage, you still need to qualify under the mortgage stress test set by the Office of the Superintendent of Financial Institutions (OSFI). This rule requires borrowers to qualify at the higher of 5.25% or their contract rate plus 2%, ensuring they can handle higher payments if rates rise in the future.
In practice, this means the lower rate on an insured mortgage does not automatically make it easier to qualify. For example, if you are offered an insured rate of 4.04%, you will be qualified at 6.04%. If you are offered a 4.54% uninsured rate, you will be qualified at 6.54%. Both options are tested against higher qualifying rates, which play a key role in how much you can qualify to borrow.
Frequently Asked Questions (FAQ) About Insured and Uninsured Mortgages
What is the difference between insured and uninsured mortgage rates in Canada?
Insured mortgage rates are typically lower because the loan is backed by mortgage default insurance, which reduces lenders’ risk. Uninsured mortgage rates are higher because the lender assumes the borrower’s full default risk.
Are insured mortgages always cheaper than uninsured mortgages?
Insured mortgages offer lower interest rates, but the added insurance premium can make them more expensive over the long term, especially if the premium is added to the mortgage balance.
Why do lenders offer lower rates on insured mortgages?
Lenders face less risk and can access cheaper funding for insured mortgages through government-backed securities, allowing them to pass on lower rates to borrowers.
Can I switch from an insured mortgage to an uninsured one later?
You cannot remove insurance from an existing insured mortgage. However, once you have 20% equity, refinancing will automatically switch your insured mortgage to an uninsured mortgage.
Final Thoughts
Choosing between an insured and uninsured mortgage comes down to more than just the interest rate. Insured mortgages can help you get into the market sooner with a lower down payment. Uninsured mortgages give you more control over your purchase price, property type, and long-term strategy. In many cases, the most cost-efficient strategy sits somewhere in the middle, where a slightly higher down payment reduces insurance costs while still unlocking competitive insured rates.
To see which option actually puts you ahead, connect with nesto mortgage experts and compare your real numbers side by side and build a mortgage strategy tailored to your goals.
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