Wondering whether to choose an insured or uninsured mortgage? No matter, which bank or lender you are lending with, residential mortgages in Canada fall into two categories, namely insured or uninsured mortgage.
One of the many advantages of being a first-time home buyer in Canada is the ability to purchase with as little as 5% down payment. This would be classified as an insured mortgage. Rather, purchasing a rental property with 20% down payment would be termed an uninsured mortgage.
What is an insured mortgage in Canada?
An ‘insured mortgage’ is one backed by one of Canada’s three major default mortgage insurers:
- Canada Housing Mortgage Corporation (CMHC)
- Sagen (formerly Genworth)
- Canada Guaranty
Because of the increased risk associated with lending beyond 80% of the property value, any home purchased in Canada with less than 20% down must be insured by one of the three insurers – as mandated by OSFI, a government agency that supervises over 400 federally regulated financial institutions.
With an insured mortgage between 5% to 19.99% down payment, the borrower must pay an insurance premium that is added to the mortgage amount borrowed. The rate of this premium is determined by how much you put down and reduces by 5% per increment.
Insurable mortgages, like insured mortgages in Canada, can offer a lower rate than uninsured mortgages without the need to pay an insurance fee. The only limitation is that the amortization period cannot exceed 25 years. This is frequently where homeowners discuss whether it is more important to have a lower monthly payment or a lower interest rate.
What is an uninsured mortgage in Canada?
Mortgages do not require insurance if you put down 20% or more. If you currently own a property, there are several reasons why your mortgage may not be insured or insurable. Here are some examples of uninsured mortgages in Canada:
- A mortgage for any purchase beyond $1 million is an uninsurable mortgage.
- Investment properties in Canada cannot be insured.
- Any mortgage with an amortization longer than 25 years is an uninsurable mortgage.
- Refinances and equity take-outs cannot be covered.
- All B-lender mortgages cannot be insured.
- Private mortgages cannot be insured.
Do interest rates differ between insured and uninsured mortgage?
Currently, the best rates are for insured residential mortgages in Canada. Uninsured mortgages offer higher interest rates and are less commonly opted by homeowners.
There are benefits to both insured and uninsured mortgages, but to make the right choice it is important to grasp the differences between the two and learn how to leverage them to your advantage. This will help accelerate equity growth and increase your net worth.
If you are looking for a reliable mortgage broker in Abbotsford, Surrey, and Edmonton, Sandhu & Sran Mortgages is the name to trust. For past many years, we are proudly assisting homeowners in getting approved for a residential and commercial mortgage at the best interest rate possible. For more details, feel free to talk to our team.