Mortgage Blog
All About Insured Mortgage
March 20, 2025 | Posted by: Sarabjit Dhuna
In Canada, an insured mortgage is a type of mortgage that is protected by an insurance policy, which reduces the risk for lenders in case the borrower defaults. This type of insurance is typically required when the borrower has a down payment of less than 20% of the home's purchase price.
Here are the key details about insured mortgages in Canada:
1. Mortgage Default Insurance
- Purpose: It protects the lender against financial loss if the borrower defaults on the mortgage. This insurance is mandatory if your down payment is less than 20% of the home’s purchase price.
- Providers: The primary providers of mortgage insurance in Canada are:
- Canada Mortgage and Housing Corporation (CMHC): A Crown corporation.
- Genworth Canada (now called Sagen MI Canada).
- Canada Guaranty.
2. Eligibility and Requirements
- The mortgage insurance is required if your down payment is between 5% and 19.99% of the purchase price.
- The home being purchased must be owner-occupied, and the buyer must meet certain credit and income criteria.
3. Cost of Mortgage Insurance
- The cost of mortgage insurance is a one-time premium that is added to the mortgage amount and is based on the size of the down payment.
- Premium Rates: For example, if the down payment is 5% to 9.99%, the insurance premium is typically around 4.00% of the mortgage amount. The premium decreases as the down payment increases (e.g., 3.10% for a 10% to 14.99% down payment).
4. How it Affects Borrowers
- Higher Loan-to-Value (LTV): The insured mortgage allows borrowers to buy homes with a smaller down payment (as low as 5%), which would otherwise be harder to secure without insurance.
- No Direct Cost for Borrowers: While the insurance is mandatory for the borrower, the premium is usually rolled into the mortgage, so the borrower does not have to pay it upfront.
5. Benefits for Lenders and Borrowers
- For Lenders: It reduces the risk of loss in case of borrower default, allowing them to offer mortgages to those with smaller down payments.
- For Borrowers: It provides the opportunity to purchase a home with a smaller down payment. However, it also increases the overall cost of the mortgage due to the insurance premium.
6. Types of Insured Mortgages
- High-Ratio Mortgages: These are mortgages where the borrower’s down payment is less than 20%. The mortgage insurance makes these types of loans more accessible to a wider range of borrowers.
7. Alternatives
- If the borrower has a down payment of 20% or more, they generally don’t need mortgage insurance. This typically results in lower monthly payments and less overall cost for the borrower.
In summary, an insured mortgage in Canada helps facilitate home ownership for those who may not have a large down payment but are otherwise financially capable of handling a mortgage. It offers protection to lenders while allowing more Canadians to enter the housing market.
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