Insured vs Uninsured Mortgages in Canada: A Simple Step-by-Step Explanation

When buying a home in Canada, one of the most important distinctions you will encounter is whether your mortgage is insured or uninsured. Many homebuyers in British Columbia and across Canada are unsure what this means, how it affects interest rates, and which option applies to them.

This guide breaks down insured mortgages, uninsured mortgages, insurable mortgages, and uninsurable mortgages step by step, while explaining how mortgage default insurance, loan-to-value (LTV) ratio, amortization period, and the mortgage stress test all work together.

Steps:

Step 1: What Is Mortgage Default Insurance?

Mortgage default insurance protects the lender—not the borrower—if the homeowner defaults on their mortgage. In Canada, this insurance is mandatory when a buyer makes a down payment of less than 20% of the home’s purchase price.

Mortgage default insurance is provided by:

• CMHC (Canada Mortgage and Housing Corporation)
• Sagen
• Canada Guaranty

The insurance premium is added to your mortgage amount and repaid over the life of the loan.

Step 2: Understanding an Insured Mortgage

An insured mortgage is a mortgage that includes mortgage default insurance.

Key Characteristics of an Insured Mortgage:

• Down payment is less than 20%
• Maximum loan-to-value (LTV) ratio is up to 95%
• Mandatory mortgage default insurance
• Maximum amortization period of 25 years
• Must pass the mortgage stress test

Because insured mortgages are less risky for lenders, they often qualify for lower interest rates.

Step 3: What Is an Uninsured Mortgage?

An uninsured mortgage does not include mortgage default insurance and is typically required when the borrower puts down at least 20%.

Key Characteristics of an Uninsured Mortgage:

• Down payment of 20% or more
• Lower loan-to-value (LTV) ratio
• No mortgage default insurance premium
• Can have amortization periods of 25 or 30 years
• Must still pass the mortgage stress test

While uninsured mortgages avoid insurance premiums, interest rates may be slightly higher compared to insured mortgages.

Step 4: Insurable Mortgages Explained

An insurable mortgage is a mortgage that qualifies for insurance but does not necessarily require it because the borrower has at least 20% down.

Insurable Mortgage Criteria:

• Property purchase price under $1 million
• Amortization period of 25 years or less
• Loan-to-value ratio below 80%
• Owner-occupied property

Insurable mortgages can sometimes access better rates than standard uninsured mortgages, depending on the lender.

Step 5: What Makes a Mortgage Uninsurable?

An uninsurable mortgage does not meet insurance eligibility rules, even with a large down payment.

Common Reasons a Mortgage Is Uninsurable:

• Purchase price over $1 million
• Amortization period longer than 25 years
• Rental or investment property
• Non-traditional property types

Uninsurable mortgages often come with higher interest rates and fewer lender options, making broker guidance especially valuable.

Step 6: Loan-to-Value (LTV) Ratio and Why It Matters

The loan-to-value (LTV) ratio measures the mortgage amount compared to the property value.

Example:

• Home price: $800,000
• Down payment: $160,000 (20%)
• Mortgage amount: $640,000
• LTV ratio: 80%

A higher LTV ratio increases lender risk and usually requires mortgage default insurance.

Step 7: Amortization Period and Its Impact

The amortization period is the total length of time it takes to repay the mortgage.

Key Rules:

• Insured mortgages: Maximum 25 years
• Uninsured mortgages: Up to 30 years (with 20% down)
• Longer amortization = lower monthly payments but higher total interest

Choosing the right amortization period is critical to balancing affordability and long-term cost.

Step 8: The Mortgage Stress Test Explained

All borrowers in Canada must pass the mortgage stress test, regardless of whether the mortgage is insured or uninsured.

The stress test ensures you can afford payments at:

• The Bank of Canada’s qualifying rate, or
• Your contract rate plus 2%

This protects borrowers from future interest rate increases and ensures long-term affordability.

Step 9: Which Mortgage Type Is Right for You?

Choosing between an insured, uninsured, insurable, or uninsurable mortgage depends on:

• Down payment amount
• Purchase price
• Property type
• Long-term financial goals
• Interest rate sensitivity

Each option has advantages and trade-offs, which is why personalized advice matters.

Why Work with Home Ease Mortgages?

Mortgage rules in Canada are complex and constantly evolving. At Home Ease Mortgages, we help clients:

• Understand insured vs uninsured mortgage options
• Minimize insurance costs where possible
• Secure competitive rates from multiple lenders
• Navigate stress test and amortization rules confidently

Our goal is to ensure your mortgage structure aligns with your financial future not just today’s approval.

Final Thoughts

Understanding the difference between insured mortgages, uninsured mortgages, insurable mortgages, and uninsurable mortgages is essential for making informed home-buying decisions in Canada. By learning how mortgage default insurance, LTV ratios, amortization periods, and the mortgage stress test work together, you can choose the right path with confidence.

If you are planning to buy or refinance a home, contact Home Ease Mortgages for expert guidance and a mortgage strategy tailored to your needs.