If you’re buying a home in Canada, one of the first decisions you’ll face is whether your mortgage will be insured or uninsured. This isn’t just paperwork — it directly affects your down payment, your interest rate, and how much you pay over the life of your loan.
Understanding the difference between an insured mortgage and an uninsured mortgage can save you thousands of dollars and help you make a smarter decision about homeownership. Here’s what you actually need to know.
What Is an Insured Mortgage?
An insured mortgage — sometimes called a high-ratio mortgage — is any mortgage where the borrower puts down less than 20% of the home’s purchase price. Because the lender is taking on more risk, Canadian law requires the mortgage to be backed by mortgage default insurance.
This insurance is provided by one of three organizations: the Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth), or Canada Guaranty. The insurance protects the lender — not you — if you can’t make your payments. But you’re the one who pays the premium.
The premium ranges from 2.8% to 4.0% of your mortgage amount, depending on the size of your down payment. It can be paid upfront at closing or added to your mortgage balance and spread across your regular payments. For a $500,000 mortgage with 5% down, the insurance premium would be about $19,000 — a significant cost, but one that lets you get into the housing market years earlier than waiting to save 20%.
What Is an Uninsured Mortgage?
An uninsured mortgage — also called a conventional mortgage — is any mortgage where the borrower puts down 20% or more of the purchase price. Because the lender’s risk is lower, no mortgage default insurance is required.
Without the insurance premium, you avoid that extra cost entirely. However, uninsured mortgages often come with slightly higher interest rates than insured ones. This sounds counterintuitive, but it happens because lenders can offload risk on insured mortgages to the insurance provider, making those loans cheaper for them to carry. According to Rates.ca, this rate difference can be 0.10% to 0.20% — small, but meaningful over a 25-year amortization.
Uninsured mortgages are also required for properties priced at $1.5 million or more, since CMHC mortgage insurance is not available above that price point. If you’re buying a higher-value property, a 20% down payment is your only option at a federally regulated lender.
Pros and Cons of Each Option
Insured Mortgage
Uninsured Mortgage
Who Should Consider Each Type
An insured mortgage may be a good fit if you:
- Are a first-time homebuyer entering the market
- Have a solid income and good credit but haven’t saved 20% yet
- Want to stop renting and start building equity sooner
- Are buying a primary residence priced under $1.5 million
- Have a credit score of 600 or higher
An uninsured mortgage may be a better choice if you:
- Have saved at least 20% for a down payment
- Are buying a home priced at $1.5 million or more
- Are purchasing a rental or investment property
- Want to avoid the added cost of mortgage insurance
- Prefer a lower total cost of borrowing over the long term
Financial Example: Insured vs Uninsured
Let’s compare two buyers purchasing a $600,000 home in Canada to see how the numbers work out. This example assumes a 5-year fixed rate and 25-year amortization.
The insured buyer gets into the market with $60,000 less upfront, but pays an extra $16,740 in insurance premiums and about $400 more per month. The uninsured buyer avoids the premium and has lower payments, but needed to save twice as much before buying. If you’re struggling with existing debts while trying to save for a down payment, exploring your debt consolidation options could help you free up cash faster.
How to Decide Which Mortgage Is Right for You
- Calculate your available down payment. Look at your total savings and any gifts or RRSP withdrawals you plan to use. If you have less than 20% of the purchase price, an insured mortgage is your path forward.
- Check your credit score. CMHC requires a minimum credit score of 600 for insured mortgages. If your score is below that threshold, you’ll need to work on rebuilding your credit or save for a 20% down payment to qualify for an uninsured mortgage through an alternative lender.
- Factor in the true cost of waiting. If home prices in your area are rising by 3–5% per year, waiting another two to three years to save 20% could cost you more than the CMHC premium would. Run the numbers for your specific market.
- Compare total borrowing costs. Ask your mortgage broker to show you the total cost over five years for both an insured and uninsured mortgage at current rates. The rate difference is often smaller than people expect.
- Consider your overall debt picture. If high-interest debts like credit cards or personal loans are eating into your ability to save, look into a credit counselling plan or other strategies to pay off debt before taking on a mortgage.
- Talk to a mortgage professional. A broker can show you both insured and uninsured options from multiple lenders and help you choose the one that fits your financial goals.
Struggling with debt and wondering how it affects your mortgage options?
What is CMHC mortgage insurance and who pays for it?
CMHC mortgage insurance (also called mortgage default insurance) is a policy that protects the lender if a borrower defaults on their mortgage. It is required by law when the down payment is less than 20%. Although the insurance protects the lender, the borrower pays the premium — either upfront at closing or by adding it to the mortgage balance. Premiums range from 2.8% to 4.0% of the mortgage amount depending on the down payment size. Two private companies, Sagen and Canada Guaranty, also provide this insurance alongside CMHC.
Can I get a mortgage with less than 5% down in Canada?
No. The minimum down payment in Canada is 5% for homes priced at $500,000 or less. For homes between $500,000 and $1,499,999, you need 5% on the first $500,000 and 10% on the remainder. Homes at $1.5 million or more require a full 20% down payment. These rules apply to all federally regulated lenders, and there is no way around the minimum — your down payment must come from legitimate, verifiable sources such as savings, gifts from immediate family, or RRSP withdrawals under the Home Buyers’ Plan.
Why do insured mortgages sometimes have lower interest rates than uninsured ones?
This is one of the most surprising facts about Canadian mortgages. Because insured mortgages are backed by CMHC or a private insurer, the lender carries almost no risk of loss if the borrower defaults. This makes insured mortgages cheaper for lenders to fund and securitize, and they pass some of those savings along as lower interest rates. Uninsured mortgages carry all the default risk on the lender’s books, so they charge a slightly higher rate — typically 0.10% to 0.20% more — to compensate.
Does mortgage insurance protect me if I lose my job?
No. Mortgage default insurance protects the lender, not the borrower. If you lose your job and can’t make payments, the lender can still foreclose on your home — and the insurance simply reimburses the lender for any loss. Some lenders offer separate “mortgage protection insurance” or “creditor insurance” that covers your payments during job loss or disability, but that is a completely different product that you would purchase separately. Before taking on a mortgage, make sure you have an emergency fund covering at least three months of expenses.
Can I switch from an insured to an uninsured mortgage later?
Not directly. Once your mortgage is insured, it generally stays insured for its full amortization — even after your equity grows past 20%. However, when your mortgage comes up for renewal, you can refinance into an uninsured mortgage if your equity is above 20% at that point. Keep in mind that refinancing involves new legal and appraisal fees. The good news is that once you’ve paid down enough principal (or your home value has risen enough), you won’t need to pay another insurance premium on any future mortgage for that property.
