Overview
In Canada, insured and uninsured mortgages differ primarily in the size of the down payment, the need for mortgage default insurance, interest rates, and eligibility criteria. Understanding these differences is crucial for homebuyers, as it impacts qualification requirements, borrowing costs, and access to certain government programs.
Key Differences: Insured vs. Uninsured Mortgages
| Feature | Insured Mortgage | Uninsured Mortgage |
|---|
| Down Payment | Less than 20% | 20% or more |
| Mortgage Default Insurance | Required (CMHC, Sagen, or Canada Guaranty) | Not required |
| Amortization Limit | Up to 25 years (30 years for first-time buyers/new builds as of Dec 2024) | Up to 30 years (including for investment/secondary properties) |
| Interest Rates | Lowest available (lender risk is reduced by insurance) | Typically higher (lender assumes full risk) |
| Maximum Home Price | Up to $1.5 million (as of Dec 15, 2024) | No maximum, but typically for homes over $1 million |
| Eligible Properties | Owner-occupied only | Owner-occupied, rental, or secondary properties |
| Who Pays Insurance Premium | Borrower (added to mortgage) | Not applicable |
| Who Benefits Most | First-time buyers, buyers with smaller down payments | Buyers with large down payments, investors, buyers of expensive homes |
Detailed Breakdown
Insured Mortgages
- Definition: A mortgage where the down payment is less than 20% of the home’s purchase price, requiring mandatory mortgage default insurance to protect the lender in case of borrower default.
- Eligibility:
- Maximum purchase price: $1.5 million (increased from $1 million as of December 2024).
- Amortization: Up to 25 years (or 30 years for first-time buyers/new builds as of December 2024).
- Property must be owner-occupied.
- Minimum down payment: 5% of the purchase price.
- Insurance Providers: CMHC, Sagen, or Canada Guaranty.
- Premiums: Paid by the borrower, usually added to the mortgage amount.
- Interest Rates: Typically the lowest rates available, as lender risk is mitigated by insurance.
- Best For: First-time buyers or those with less than 20% down.
Uninsured Mortgages
- Definition: A mortgage with a down payment of at least 20%; no mortgage default insurance is required, so the lender assumes the risk.
- Eligibility:
- No maximum purchase price; common for homes over $1.5 million or investment/rental properties.
- Amortization: Up to 30 years.
- Can be used for investment, rental, or secondary residences.
- Interest Rates: Higher than insured mortgages, since the lender bears more risk.
- Best For: Buyers with larger down payments, investors, or those buying higher-priced homes.
Provincial Variations
- Mortgage insurance taxes: In provinces such as Ontario and Quebec, provincial sales tax is applied to the insurance premium, payable at closing.
- Down payment rules and home price thresholds are set federally, but some provinces may have additional programs or incentives for first-time buyers.
Government Programs & Incentives
- First-Time Home Buyer Incentive: Offers shared equity with the Government of Canada, available only for insured mortgages.
- Home Buyers’ Plan (HBP): Allows withdrawal from RRSPs for down payment; available for both insured and uninsured mortgages.
- Extended Amortization: As of December 2024, first-time homebuyers and purchasers of new construction can access 30-year amortizations for both insured and uninsured mortgages, increasing affordability.
Major Canadian Bank Offerings
- Insured mortgages: Most major banks offer competitive rates for insured mortgages, often advertising these as their lowest rates.
- Uninsured mortgages: Available from all major lenders, but rates are usually higher and less prominently advertised. Terms and eligibility may vary, especially for investment properties.
Actionable Next Steps & Recommendations
- Compare your options carefully: If your down payment is less than 20%, you must obtain an insured mortgage. If you have 20% or more, weigh the benefits of lower rates (with insurable options) versus longer amortization or higher property values (uninsured).
- Apply through theratefinder: For personalized, competitive mortgage rates from top Canadian lenders, use theratefinder’s multi-step application process. They specialize in helping Canadians compare and secure mortgages for residential, commercial, and construction needs.
- Start your application at theratefinder.ca/onboarding to receive tailored rate comparisons and expert guidance.
Summary
Insured mortgages in Canada are ideal for buyers with smaller down payments, offering lower rates but requiring default insurance and limiting property price and type. Uninsured mortgages suit buyers with larger down payments, higher-priced homes, or investment properties, but typically come with higher interest rates. Recent policy changes have expanded access to extended amortization for first-time buyers and new builds, increasing flexibility across both mortgage types. Always compare rates and qualifications to choose the best product for your situation.