Insured or Conventional Mortgages? Which one is best for you?

We have a few different mortgage types in Canada depending on the amount of the down payment and the purchase price of the home.

When deciding between insured and conventional mortgages, it’s important to consider your financial situation and goals. If you have a smaller down payment (less than 20%), an insured mortgage is necessary. However, if you have a larger down payment and want to avoid the cost of mortgage insurance, a conventional mortgage may be a better option. If you have more than 20% down, and are purchasing under $1 Million – there is a 3rd option – Insurable. An Insurable mortgage is one where the mortgage meets all the parameters of an insured mortgage, but you have more to put down. You will get more favourable rates doing this – but not as good as the insured ones.

What is an Insured Mortgage?

Insured Mortgages:

• An insured mortgage is a mortgage on a property with a purchase price under $1M.
• Mortgage insurance is typically provided by the Canada Mortgage and Housing Corporation (CMHC) or other mortgage insurers such as Sagen or Canada Guaranty.
• Insured mortgages are required for homebuyers who have a down payment of less than 20% of the purchase price.
• The mortgage insurance protects the lender in case the borrower defaults on the loan.
• With an insured mortgage, the borrower pays a premium for the mortgage insurance – this premium is tacked on to the mortgage amount and paid over the life of the mortgage.

It’s important to note that mortgage insurance is not transferable if you refinance your mortgage (it becomes conventional) or if you sell your home and purchase a new one and still fit the criteria you will have to pay a top up amount if you want to keep the insurance (you will also be limited to a shorter amortization). In such cases, you may need to reapply for mortgage insurance if you are obtaining a new mortgage with a down payment of less than 20%.

What is a Conventional Mortgage?

Conventional Mortgages:

• A conventional mortgage in Canada is a mortgage where the borrower has a down payment equal to or greater than 20% of the purchase price.
• Conventional mortgages do not require mortgage insurance.
• Conventional mortgages offer more flexibility in terms of mortgage terms and conditions.
• Interest rates for conventional mortgages are higher compared to insured mortgages in the majority of cases. When putting down more than 35% exceptions can be made to match insured (advertised) rates.

What about Insurable Mortgages?

An insurable mortgage in Canada is a type of mortgage that is eligible for mortgage insurance provided by the mortgage insurers, but you don’t have to pay the premium:

Eligibility: Borrowers with a down payment of 20% or more and purchase price under $1M

Benefits: Lenders are more willing to offer mortgages with lower down payments when they are insured/insurable, as it reduces their risk of financial loss in case of default. This means you (in most cases) are eligible for lower rates than conventional mortgages

Regulations: Insured/Insurable mortgages are subject to specific regulations and criteria set by the mortgage insurers, such as CMHC, in order to qualify for mortgage insurance.

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Overall, an insured mortgage provides an opportunity for homebuyers to enter the housing market with a smaller down payment, while also providing a level of protection to the lender. If you have further questions about insurable mortgages in Canada, feel free to ask!