What is an Insured Mortgage?
High ratio mortgages (over 80% loan to value) are also called INSURED mortgages. Default insurance is in the form of an insurance premium charged as a percentage of your borrowed mortgage amount. Borrowers can put less than 20% down on an insured mortgage but must pay default insurance ranging from 2.8% to 4% of the borrowed mortgage amount, which is added to the total amount borrowed.
You can also choose to pay it upfront in cash and not add it to your mortgage balance, saving interest on that amount over the life of your mortgage.
Mortgage Default insurance is provided by one of Canada’s 3 high-ratio default insurers, Canada Mortgage Housing Corporation (CMHC), Sagen (GE) or Canada Guaranty (CG).
Every lender has different guidelines to assess the risk they are willing to take on a client’s mortgage when it is not insured by default insurance.
What is an insurable or uninsured mortgage?
There are insurable mortgages (more than 20% down payment but less than $1.0m purchase price means that the LENDER pays the default insurance) and uninsurable mortgages (always more than 20% down and, by new Ontario mortgage guidelines, more than $1.5m purchase price) in which default insurance is not paid by either the lender or borrower. Hence the name uninsured mortgages.
These definitions are important to understand when you're deciding how much to put into your downpayment. If you have any questions, or want to talk about your options, I am happy to schedule a call!
